NAFTA And The Auto Industry

Analyst Paul Eisenstein of car industry site The Detroit Bureau speaks with NPR's Melissa Block about the automotive supply chain and how sweeping changes to NAFTA would affect car makers.

MELISSA BLOCK, HOST:

A Friday deadline set by the Trump administration to strike a deal renegotiating NAFTA came and went, with talks set to resume this week. One area of the trade deal concerns automobiles, which are manufactured through a complex web of parts suppliers and employees in Canada, the U.S. and Mexico. Paul Eisenstein is publisher of thedetroitbureau.com. It's a website that covers the auto industry. And he joins us now. Paul, welcome to the program.

PAUL EISENSTEIN: Good to be with you.

BLOCK: What do the proposed changes to NAFTA mean for the auto industry overall?

EISENSTEIN: Well, I think the best thing that you can say about it is that it will prevent the Trump administration from eliminating NAFTA entirely. Unfortunately, we still can't tell what the final results will be because we don't have a deal, from what we hear, with Canada. And I think we're still trying to figure out exactly what the negotiations so far have resulted in when it comes to Mexico. There are going to be new caps, new rules - supposedly going to help drive a few more jobs back to the United States. But one thing that I'm particularly concerned about from what I've gotten out of the deal so far is that we'll probably also see prices for American consumers go up on cars over the next few years.

BLOCK: Does it seem to you that they're kind of tinkering around the edges? I mean, when they're talking about things like increasing the percentage of parts of a vehicle that have to be made in the United States, are these fundamental changes or just a way for the administration to say, hey, we took a hard line, and we got a new deal?

EISENSTEIN: I think a lot of it is to say, we took a hard line, and look what we did. There's some indication that automakers and auto parts suppliers could wind up rushing to put new plants down in Mexico before the deal officially takes effect. You know, it's one of those things you do. You move things around when you're about to sign an armistice over war. Well, the same thing happens here. And we might wind up actually seeing some jobs go to Mexico before this goes into effect.

BLOCK: Interesting. Let's talk about the supply chain and consider one specific vehicle in particular, the Ford F-150 pickup truck. It's called one of the most made-in-America vehicles. But if you look at the components, it's made using aluminum from Quebec, windshield wipers from Mexico, transmissions from the U.S. Is that a typical supply chain in North America?

EISENSTEIN: Oh, that's very much the case. You can take it down literally to the nuts and bolts. You may have a screw produce at a plant, say, in Indiana that's shipped across the border and used in a module that then is shipped across the border again and installed into a bigger part, installed in something else and then finally returned to the United States and assembled into a Ford F-Series. Some of the parts could cross the border, I've been told, as much as seven times before it rolls off the assembly line.

BLOCK: I was surprised, Paul, to learn that the largest exporter of cars from the United States is not an American company.

EISENSTEIN: No. It's BMW down in Spartanburg, S.C. Mercedes, which has a plant in Alabama, is close behind. Honda, which has operations all over the Midwest, is another major automotive exporter. And that's part of the whole globalization of the auto industry. Here's where the United States wins. In some cases, we have plants like that BMW factory that become the sole source for certain models that go all over the world - in this case, the X5 crossover utility vehicle. And BMW and Ford have both said that they may have to cut back investments and production if we see a tit-for-tat trade war develop.

BLOCK: Paul Eisenstein with thedetroitbureau.com, thanks so much for talking with us.

EISENSTEIN: My pleasure to be with you.

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