APMA_post_TrumpThreat
Automotive Market Intelligence

Trump’s threat to close Mexican border a looming disaster for auto industry

Dave Waddell, Windsor Star
April 3rd, 2019

Auto industry analysts are warning production would come to a grinding halt in a matter of days should American President Donald Trump follow through on his threat to close the Mexico-U.S. border.

President of the Auto Parts Manufacturers Association Flavio Volpe said the Windsor Assembly Plant, which is currently on a two-week shutdown, wouldn’t have the inventory to last beyond a day or two. He added Tier One and other suppliers across Southwestern Ontario would be quickly caught in the crunch.

“They’d be hurting the very people they say they’re standing up for”

“You calculate the inventory at plants — it’s very short one or two days,” Volpe said.

“There’s no scenario where the American administration wouldn’t cripple the industry if it makes this move. The president has an affinity for aiming at his feet and this would be the biggest self-inflicted wound to date.”

Trump has threatened such a drastic move to put pressure on Mexico and the U.S. Congress as part of the ongoing dispute over security and immigration at America’s southern border.

The Alliance of Auto Manufacturers, which represents U.S. auto manufacturers, put out a written statement Wednesday warning of the perils of such action.

“Automakers rely heavily on cross-border trade throughout the North American region,” said the Auto Alliance statement.

“In many instances, auto parts can cross the border multiple times before being integrated into the final assembly of a vehicle.

“We urge all parties to work together to avert a border closing that would result in significant disruptions to the North American auto industry.”

With the industry so tightly integrated some components are largely made only in Mexico.

For instance, 70 per cent of wiring harnesses are produced in Mexican plants, according to the Centre for Automotive Research located in Ann Arbor, Mich.

In addition, Volpe said Mexico produces many of the seat belts, steering wheels, windshields and even tires, used by North American plants.

An example of just how time sensitive and integrated the industry has become, Windsor Assembly had its current shutdown weeks moved up to the beginning of April because of a parts shortage at another plant.

“There are 60 Canadian companies operating 120 factories in Mexico,” Volpe said.

“You wouldn’t be able to get the sub-components across the border needed for final assembly. No factory would have the parts and components it needs.”

Volpe said no automaker could quickly make the adjustments required to make up the volume trapped in Mexico.

According to the Centre for Automotive Research, over US$113 billion in parts was imported from Mexico in 2018 while another $36 billion in automotive exports went the other way across the border.

The research centre estimates the shutdown would cost American automakers $5 billion per week. That doesn’t include the financial carnage it would wreak on automotive suppliers.

Shelley Fellows, VP operations for Radix Inc., is pictured at the company’s open house celebrating 24 years, Tuesday, Oct. 16, 2018. DAX MELMER / WINDSOR STAR

“We do work in an engine plant in Mexico for one of the Detroit Three,” said Shelley Fellows, chair of Automate Canada and vice-president of operations for Radix Inc.

“If they lost access to that plant it would be a significant problem for them.”

Fellows added even if Trump is just bluffing, the uncertainty is bad for the industry.

“It puts a gate in front of the growth of the industry,” Fellow said. “It would be a devastating blow.

“Businesses have to re-think the risks of investment in Mexico. They also have to re-think about investing in Canada.

“There’s a great deal of uncertainty in North American manufacturing.”

Volpe warns the damage to the auto supply chain could be the most lingering fallout.

“If there’s a shutdown, how long do you stay down before there are some companies who are no longer going concerns?” Volpe said. “A shutdown could put some suppliers out of business.

“Then OEMs (original equipment manufacturers) can’t find the products they need. You’re hurting yourself.”

Volpe said it would be a huge gamble by the American administration to seal the Mexican border.

“They’d be hurting the very people they say they’re standing up for,” Volpe said. “Because a complete border closure is so quick, dark and absolutely damaging, I can’t see him (Trump) doing it.

“But I fear what he might do instead is to stop the flow of people and keep the freight moving along.”

Via: Windsor Star