News / Automotive logistics south of the border braces for impact as Trump takes over

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Celebrations at the opening of the latest automotive logistics processing facility for Wallenius Wilhelmsen Logistics this month may not have been too boisterous. The facility is at Audi’s new car assembly plant in San José Chiapa, Mexico, and is the logistics provider’s ninth branch in the country.

The auto industry has been on the receiving end of a salvo of tweets from US president-elect Trump, threatening punitive action for companies that produce cars in Mexico with a view to selling them in the US.

The tweets have created uncertainty over the future direction of car production in Mexico and the supply chains of auto makers involved there.

The protectionist camp claimed a first victory on 3 January when Ford, an early and continuous target of Trump rhetoric in the election campaign, cancelled plans for a $1.6bn assembly plant in Villa de Reyes and would invest in a facility in Michigan instead.

Ford claimed that the decision was made on commercial grounds and not influenced by the attacks from the incoming president’s camp. But Trump’s side was quick to paint the decision as a victory and promised further action.

Thus followed tweets targeting General Motors, Toyota and, later, German carmakers, threatening 35% tariffs on cars made in Mexico and sold north of the border.

So far, no carmaker other than Ford has signalled second thoughts over a planned investment in Mexico – BMW confirmed it would proceed with its investment in the country.

However, the incoming US administration’s stance will affect flows to and from the US and Mexico, believes Toni Fondevilla, executive vice-persident, global automotive sector, at CEVA Logistics.

“I think everybody is re-thinking their strategies, not only OEMs, but also first-tier suppliers,” he said.

According to the Center of Automotive Management at the University of Applied Sciences in Bergisch Gladbach, Germany, a 35% tariff on cars would force manufacturers to revisit their calculations and reconsider if their planned investment in Mexico would still pay off.

Car production in Mexico has gone through the roof in recent years. Last year, assembly plants there turned out 3.4 million vehicles and output is projected to reach 5.1 million units a year by the end of the decade.

The country ranks fourth in the global exporter list and seventh on the producer list. Today, 17 global brands have manufacturing plants in Mexico, and new facilities for Toyota, GM, Daimer, BMW, Honda and Kia are planned.

Besides low labour costs, the country offers easy flow of parts and vehicles, thanks to free-trade agreements with 46 countries. Up to 80% of the vehicle production in Mexico is exported, and three quarters of this heads for the US, with another 10% destined for Canada.

Auto executives in Canada were hoping that the new protectionist stance in the US would only target Mexico, but recently there have been signals that punitive tariffs would also be imposed on cars made in Canada.

Mr Fondevilla predicts repercussions on a global basis, pointing to the next president’s comments on NAFTA and the Trans-Pacific Partnership.

For the automotive sector he sees three likely scenarios: OEMS may shift some production to the US; their suppliers may feed those plants from Mexico or in the US, depending on whether the tariffs are extended to auto parts; or OEMS may shift their strategic focus away from the US to other markets.

Thomas Reuter, CEO of Air & Sea Logistics at Dachser Group, reported that his company had not had any news from its customers in this sector. He says auto makers will follow developments closely but adopt a wait-and-see attitude until it becomes clearer how much of the rhetoric from the election campaign will turn into government action.

These developments have no impact on Dachser’s planned network expansion in the US, he added.

Cathay Pacific carries some automotive traffic on freighter flights to Mexico, which are routed over Los Angeles.

“To date we have not received any advice from our partners of a change in pattern. Mexico demand remains strong from Asia,” said Mark Sutch, general manager of cargo marketing and sales.

He thinks it will take time for changes by the new US administration to trickle through.

If the tough stance in Washington continues, Mr Fondevilla does not expect a cataclysmic change in the short term. More likely, investment plans for Mexico would be scaled back or shelved, leading to a gradual change in auto supply chains, he added.