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Transmission: Auto suppliers will head south for better weather

(Photo: Ford)

Here’s what’s cookin’ today in Transmission:

  • Suppliers are following OEMs to Mexico
  • VW unveils its new EV strategy 
  • Industry news

Suppliers are following OEMs to Mexico

There are a couple of trends shaking up the automotive industry in the years ahead. Electric vehicles are the obvious example that comes to mind. Other examples include the rise of digitization in new vehicle models and the need for an omnichannel car-buying experience. One trend often gets left out: the growing reliance on Mexico and cross-border trade. As OEMs relocate manufacturing down in the south, suppliers are starting to follow in their footsteps.

According to José Zozaya Délano, executive president of the Mexican Automotive Industry Association (AMIA), trade relations between the U.S. and China present a window of opportunity for Mexico. “It is expected that during the administration of President Joe Biden, some of the imposed measures on Chinese technology platforms and products tariffs that led to a trade war during the Donald Trump term could be negotiated to strengthen their bilateral relations,” Zozaya Délano told FreightWaves’ Noi Mahoney

The conflict between Trump and China has made Mexico look quite enticing to auto companies and further strengthened relations between the United States and Mexico. This is especially true when we think about the United States-Mexico-Canada Agreement (USMCA) and how automakers have to adjust in order to meet the updated requirements, which include sourcing 75% of the components in North America and ensuring workers are paid at least $16 an hour. 

Oftentimes, there’s less hassle involved for suppliers and OEMs if proximity isn’t an issue. Think of it like a long-distance relationship. Navigating a relationship with many miles between you and your significant other can be a tough task to accomplish if communication and transparency aren’t addressed from the start (speaking from experience). It doesn’t mean it can’t be done, rather it makes things more complicated. Since the USMCA opens the door for OEMs to avoid expensive tariffs by relocating, suppliers may find it more advantageous to move relatively closer to OEMs in order to improve communication and supply chain visibility.

“Since your OEMs have moved down there years ago, there has been a shift for Tier 1, Tier 2, Tier 3 moving to Mexico,” said Rahul Oltikar, chief operating officer of Laredo, Texas-based JAMCO Group. “When you take a look at China and India, and the rate of growth with their labor rates that they have had over there, it’s not necessarily cost competitive to be over there anymore.” Oltikar also highlighted Mexico’s geography and how it improves supply chain security. Auto companies have to deal with containers and cash flow when embarking on long ocean voyages. If vehicles are sold in North America, then they should be made there as well.

Here’s a great example: As of Monday, Ford is in communication with suppliers about building a small van down in Hermosillo, Mexico. Ford currently imports the van from Spain but, once finalized, would be built alongside a compact pickup truck and buzzy Bronco crossover. The Detroit automaker plans to produce nearly 40,000 vans per year starting in 2023 and requested parts quotes from multiple suppliers. The van is poised to be the next-generation Transit Connect, the top-selling small van in the U.S. A van made in North America for North America. Suppliers are going to play a big role in helping automakers, like Ford, reach the criteria listed in the USMCA by moving to Mexico. 

VW unveils its new EV strategy

If you were to ask me today which legacy automaker has the best chance of competing with Tesla, I would probably respond with General Motors. Led by CEO Mary Barra, GM is creating waves in the automotive space with heavy investments into EV and autonomous vehicles and ambitious zero-carbon emission goals. However, I’m beginning to believe that Volkswagen has a solid chance of competing with Tesla as well, especially after unveiling its new “Accelerate” strategy. 

“With Accelerate we are increasing the speed on our path to a digital future,” said Ralf Brandstaetter, who pioneers the VW brand. The German automaker has adjusted its original target of owning 35% of European market share by 2030 to 75%. Over in China and here in the United States, VW now expects to own around 50% of market share by 2030 as it competes with the likes of Tesla and other automakers. In order to achieve this, Volkswagen has to launch a new EV every year.

At the core of this new strategy lies an increased push of software integration. VW is also setting the scene for new, data-based business models that’ll allow it to create additional revenue through charging services, software-based functions and autonomous driving. Future vehicle selection will be less complex, with significantly less model variations.

If you’re interested in learning more about Accelerate, check out the article VW published outlining the new strategy. 

Industry news:

  • Finally, some good news pertaining to the global semiconductor shortage. Robert Bosch’s new semiconductor plant, located in Dresden, Germany, is entering the testing phase for facility operations. The $2.1 billion dollar factory is scheduled to begin production at the end of this year. Although opening day isn’t for awhile, this is reason to celebrate as a new facility means chip capacity, for the supplier and the industry as a whole, will expand.
  • The U.S. Postal Service is on the brink of receiving serious funds to expand its electric fleet. A group of 17 House Democrats are introducing legislation that will grant the Postal Service $6 billion to buy tens of thousands of delivery vans. The bill would require 75% of the new fleet to be electric or zero emissions. Why only 75%? It would cost an additional $3 billion to $4 billion to convert 90% of the fleet.
  • I have some bad news for folks who are fans of Peugeot, one of the many brands that fall under the Stellantis umbrella. Stellantis has decided against the return of the French manufacturer to the United States. The auto group wants to focus on strengthening existing leads in the U.S. Larry Dominique, an executive appointed to lead Peugeot’s return, was announced as the new head of North America of Stellantis’ Alfa Romeo. 

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