The United States’ new bilateral trade agreement with Mexico, intended as a partial replacement for the 24-year-old North American Free Trade Agreement between those two countries and Canada, is expected to lead to higher costs for automakers – and thus, higher prices for consumers – if ratified. Automobiles were a key focus during negotiations, and under the new tentative deal, at least 75 percent of a vehicle’s value would have to come from within the member nations in order for that vehicle to escape tariffs. NAFTA had a requirement of 62.5 percent.
The agreement also calls for a minimum of 40 percent of vehicles to be made by employees making at least $16 per hour – a provision that seems especially aimed at encouraging American production.
“The new agreement will push production costs higher on Mexican products – parts and vehicles – which, eventually, will be paid by American consumers,” says Autotrader Executive Analyst Michelle Krebs. She says that costs are already trending upward for other reasons, such as “higher transaction prices because of the richer mix of utility vehicles, metal tariffs, [and] more technology content.
“A new NAFTA agreement will only add to the price headwind consumers are already facing.”
Automobile manufacturing is a large, complex ecosystem, with billions upon billions of dollars invested all around the globe between automakers and their suppliers. As such, making sudden, abrupt adjustments in where a part is sourced from or where final assembly takes place is difficult-to-impossible. “Just because a tentative trade pact has been reached with Mexico, we don’t expect automakers and suppliers to abruptly announce changes in their production plans,” Krebs says, meaning automakers will likely more-or-less maintain their current operations if the US-Mexico trade deal is ratified, driving up costs.
The used market has already seen an influx of spending in the wake of US President Donald Trump’s metal tariffs, as more people anticipate much higher prices for new cars. Ms. Krebs says that while used car prices typically decline during the summer, this year, they’ve been rising for ten straight weeks.
(Source: Detroit Free Press)
Comments
Here are your choices.
You buy cars from China and get them cheap or you get them from North America pay more and create jobs.
Being self sufficient is not easy or cheap but is needed to a degree for national security. We learned this during WW2.
Also you lose mfg jobs you get left with tech, medical and service jobs only.
“… and create jobs” is a self-deception. You do not seriously believe that a production which runs in Mexico which very cheap labor (compared to the northern USA, where they have trade unions, will, wenn moved to the USA, run with the same number of workers paid much more? No! Never! Never ever!
They will apply a much much higher degree of automation, requiring less workers per car-day, and, if possible, move it to the South without trade unions, i.e. cheaper labor.
And before that — the governments might make plans and dream of things they will bring about, but the actual decisions have to be taken by the corporations who operate as a global company anyway. So, if producing in NAFTAland gets too expensive with artificially higher prices for steel and aluminium and automobile parts from suppliers, they might find it more convenient to move production to a completely different place.
The law of the unintended consequences…
What Trump has signed is a great deal for the American Worker and jobs, and bad news for Automakers cheating out on Chinese crap parts. Thank you Mr. Trump
Consumer prices only go up if there’s no competition. Competition and success of the product determines price, not a couple hundred dollars of labor costs or parts per vehicle. Just more liberal nonsense.
Sorry any and all cost raise prices be it materials, storage, fixed cost and labor. Supply, demand and competition are a part of pricing not cost.
All this is a part of the equation and you have to balance the factors involved to make it work. That was what they were trying to do here.
A few hundred dollars per car add up to a few hundred million per million cars. Someone has to pay it. But the key is to not give away the jobs where people can earn the money to pay for it.
The Liberals just want people on the dole reliant on the government while the conservatives want to create jobs to where everyone has an opportunity to share in the growth.
If you do not participate you do not share.
Analyst says ? Damn. They’re never wrong. We are screwed