The Trump administration’s proposals for new auto rules in the North American free-trade agreement appear to be influencing investment decisions even before a decision has been made on whether the agreement lives or dies.
Auto companies considering major long-term investments are “probably either waiting or they’re going to be biased to invest more in the U.S. until there’s an outcome here,” Magna International Inc. chief executive officer Don Walker said Thursday.
Magna is awaiting the outcome of negotiations, which so far have included the United States insisting that vehicles made in the United States, Canada and Mexico contain 85 per cent North American content in order to be shipped duty-free within the three countries. A second key U.S. proposal is that vehicles imported to the United States from Canada and Mexico contain at least 50 per cent U.S. content.
Mr. Walker did not comment on those proposals when asked about NAFTA Thursday on the company’s third-quarter financial results conference call, but Magna’s position is that the end of NAFTA would be hugely disruptive to the North American auto sector and would increase costs of production.
The auto parts giant has rejected specific country of origin content requirements as “contrary to the objective of a free-trade agreement.”
Mr. Walker said Magna has been “actively engaged” in the discussions the auto sector has had with various governments about NAFTA, but has not made any changes to its own investment plans.
The auto industry has stepped up its lobbying efforts in Washington after the fourth round of talks concluded in October with Canada and Mexico rejecting the U.S. auto demands, which also included a new clause requiring renegotiation of the deal every five years and a proposal to eliminate a chapter that provides for resolution of disputes.
The American Automotive Policy Council, which represents the Detroit Three auto makers, said Thursday that the industry has the largest stake of any industrial sector in the outcome of the NAFTA negotiations, which resume in Mexico City next week.
The duty-free benefits of NAFTA save auto makers in the United States about $10-billion (U.S.) annually, the association’s president Matt Blunt said in a presentation in Washington.
“If President Trump withdraws from the pact, it’s basically a $10-billion tax on the auto industry and consumers in America,” Mr. Blunt’s presentation said.
The group said the current rule of origin requiring that vehicles contain 62.5 per cent North American content is the highest of any trade agreement in the world. It added that vehicles assembled in Canada and Mexico and exported to the United States have a high level of U.S. content, although it did not specify how high.
“If the rule of origin is set too high, auto makers could decide to pay the 2.5 per cent U.S. import tariff on cars and SUVs, rather than try to meet the rule of origin,” the presentation said.
Magna reported record third-quarter financial results. Sales hit $9.5-billion, up from $8.8-billion a year earlier. Profit was steady at $503-million, while share profit rose to $1.36 from $1.29.
The company’s shares fell in early trading Thursday amid some softness in the forecast for results from its Getrag transmission manufacturing unit.
AUTO INDUSTRY REPORTER
The Globe and Mail, November 10, 2017