How NAFTA Will Affect Automobile and Truck Manufacturers

Earlier this year, the United States, Mexico, and Canada reached decisions on several proposed revisions to the North American Free Trade Agreement, or NAFTA. Although these changes have only a minor impact on the Agreement as a whole, the changes that have been made focus on updating policies regulating the automobile and trucking industries – namely auto manufacturers and auto part manufacturers.

Overview of Proposed Changes to NAFTA

While many economists have agreed that the bulk of NAFTA has been beneficial to North American economies, it has often been criticized by American auto-manufacturers for sending manufacturing jobs abroad. The updates to NAFTA attempt to address that concern. To briefly summarize, the proposed changes – if ratified by Congress in early 2019 – would do the following:

  • It would not impose the tariffs that President Trump has consistently stated he would level on both Mexico and Canada.
  • The United States must also make a deal concerning automobile trade policy with the European Union. This will likely impact German auto manufactures selling vehicles in the United States.
  • Most importantly, the new rule incentivizes car manufacturers to source their parts locally. To be more specific, it would require that 75% of all parts used in American and Mexican built cars must come from North America. Additionally, between 40-45% of all parts must be made by workers who earn the required minimum wage.

NAFTA Proposed Increase for the Requirement of Locally Source Auto Parts and Hourly Wages

This final point will be the source of most change in the automobile and truck manufacturing industries. Currently, between 62-63% of all parts used in assembling vehicles come from North American sources. While the 75% rule is significantly less than President Trump’s original number (he initially sought 85%), the jump to raise that figure approximately 19% is significant. The rule not only discourages American manufacturers to source their parts from cheaper regions, but it also prevents Mexican manufacturers from purchasing parts from other neighboring countries in Central America.

The second part of that rule change is also geared towards sourcing auto-parts locally by encouraging manufacturers to keep production in the United States. Until Mexican auto-part makers can raise the wages of Mexican laborers to meet the minimum pay levels, car manufacturers will be looking to the US to fulfill that obligation, as American laborers are typically paid more (or similarly have a smaller gap to cross to meet that wage requirement).

Who Will be Affected by the NAFTA Proposed Changes?

Perhaps it is unsurprising that the companies that will be hit the hardest by the new regulations are international car and truck makers, namely from Europe and Japan. However, it is expected that some American manufacturers will be affected as well; especially those companies that export large portions of their operations to Mexico or other countries offering lower prices. Companies that fail to meet the new requirements will most likely have to pay a tax.

The Davlyn Group Can Help Auto and Truck Manufacturers Prepare for New NAFTA Ruling

In anticipation of the new rules, manufacturers will begin looking for new auto and truck part producers who they can purchase parts from while simultaneously meeting the conditions of the updated NAFTA. Fortunately, companies like Davlyn Manufacturing, Co. and Darco Southern can help automobile and truck manufacturers meet these new obligations.  With our manufacturing plants located in Pennsylvania and Virginia, we are a US-based option that specializes in thermal solutions. We are also proud to share that our employees are paid wages that satisfies the NAFTA requirement for sourcing parts from manufacturers.

As these changes to NAFTA become a reality, Davlyn can help automakers and truck manufacturers stay compliant with the law. Our products will live up to production standards and allow operations to transition to these new regulations seamlessly. NAFTA’s new policies will have significant implications for the automobile and truck manufacturing industries, but Davlyn can help manufacturers find a solution. Contact us today for more information!