On Thursday last week, FCA announced through a press release that production of the RAM Heavy Duty truck would be transferred from its current location in Saltillo to the company’s Warren Truck Assemply Plant in Michigan. FCA will allocate a US$1 billion investment in its Michigan plant to accomodate the truck. Meanwhile, the Saltillo plant will be repurposed for a future commercial vehicle model earmarked for the global market.
The company expects to make this shift effective by 2020. The decision came as a result of the tax reform legislation reached in the US in late 2017, which freed resources for this and other project investments as well as a US$2,000 bonus for over 60,000 workers. However, the move was also motivated by the current NAFTA talks and the potential 25 percent tariff on pickup trucks that automakers would face should the treaty end.
When asked about FCA’s decision at the North American International Auto Show 2018 (NAIAS), the company’s CEO Sergio Marchionne stated that sending back production of the RAM to the US, despite the increased production costs this would entail, was “an act that was owed. It was owed to the constituency that allowed us to survive in 2009, and to the 60,000 people that work here today.”
FCA is not alone in the pickup dilemma. GM’s CEO Mary Barra was also approached at the NAIAS with questions about the future of pickup production in Mexico but failed to offer a direct answer. “When I look at our footprint, there is so much more work and negotiations to be done on NAFTA,” she said. “We’re going to continue to work constructively to get a modernized NAFTA agreement.”
The company still sees future for the negotiations and its North America President Alan Batey says they will worry about the end of the treaty “when we get there.” Still, some already see this outcome as a possibility.
Mexico, Canada and the US are preparing for the next negotiation round scheduled for Jan. 23 in Montreal. There are positive expectations for the meeting but the US’ position threatens the survival of NAFTA. According to an official statement from US trade representative Robert Lighthizer issued after the fifth round of negotaitons, the US has “no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement. Absent rebalancing, we will not reach a satisfactory result,” he said.
Demands for renovated rules of origin with 50 percent US content have not been welcomed by Mexico’s or Canada’s negotiators nor by industry representatives such as Magna International’s CEO Don Walker who stated that a dysfunctional NAFTA would be a “lose-lose-lose” for the region.
While Mexico’s main negotiator and Minister of Economy Ildefonso Guajardo remains positive and has hinted at openess from Mexico’s side to analyze the US’ proposals, Canada officials are less optimistic and forecast an upcoming announcement from US President Donald Trump to abandon the agreement. On the US side, Treasury Secretary Steven Mnuchin issued a new warning regarding the upcoming round: “Ambassador Lighthizer is doing an amazing job renegotiating NAFTA, and we expect that will be renegotiated or we’ll pull out.”
Trump also maintains his position on ending NAFTA should his demands fail to be met. However, he stated he intends to be “a little bit flexible” in delivering on his promise in consideration of Mexico’s upcoming presidential elections. Talks are expected to end in March but it might be possible for them to extend beyond the elections in July. In the meantime, both Mexico and Canada say they will stay at the table as long as possible to reach an agreement.
The data used in this article was sourced from FCA, Reuters, Automotive News, CBC, Industry Week and the Office of the United States Trade Representative.