Workers assemble vehicles at a production plant in Pesqueria, Mexico in this file photo.Susana Gonzalez/Bloomberg
Tariffs imposed on vehicles and parts exported from Mexico would increase costs to auto makers that would range from $650 (U.S.) to $1,145 and those costs would be passed on to consumers, says a new study on the impact of tariffs and border adjustment taxes on the auto sector.
The study, done by Boston Consulting Group for the Motor & Equipment Manufacturers Association (MEMA), a trade organization for U.S. auto-parts makers, examined the impact tariffs of 20 per cent and 35 per cent would have on the auto industry if the United States departs the North American free-trade agreement.
The report was issued one day after Jerry Dias, president of the Canadian union Unifor, called on U.S. and Canadian officials to slap "heavy tariffs" on vehicles exported to the United States and Canada from Mexico as a means of diverting the flow of investment from Mexico to the more northerly members of NAFTA.
"At some point this will hit the consumer, there's no way that [auto makers] or suppliers can eat this," Xavier Mosquet, a senior Boston Consulting Group partner and lead author of the study, said Wednesday.
Tariffs are also unlikely to lead to a shift in assembly plant investment out of Mexico, Mr. Mosquet said, because the U.S. vehicle market – destination for the vast majority of vehicles assembled in Mexico and in Canada – has hit a plateau.
Auto makers have been operating their factories at more than 100 per cent of capacity, he noted, and will scale that back as the market declines from its plateau during the next few years.
"We have enough capacity for the next 10 years," he told a news conference and webcast in Detroit.
The report outlines a potential ripple effect from higher costs: Consumers would react by buying less expensive vehicles and keep their own payments down by passing on some new technologies designed to make driving safer.
"Some of the features to come out will be active safety features," Mr. Mosquet said. Industry officials at the news conference pointed to active emergency braking as one new safety feature that the industry has agreed to include on vehicles, but so far is not required to be on cars.
Much of the study examined the impact of border adjustment taxes, which are on the agenda for Republican politicians in the U.S. House and Senate, although President Donald Trump appears to have stepped back from insisting on such taxes in his efforts to repatriate jobs to the United States in the auto sector and manufacturing generally.
Border adjustment taxes "will stunt job growth and hinder the ability of American manufacturers to compete in the global market," said Steve Handschuh, president of MEMA.
U.S. auto-parts makers employ more people than any other sector within manufacturing, Mr. Handschuh said.
The report assessed the impact of border adjustment taxes of 15 per cent and 20 per cent. A 15-per-cent tax would add $1,025 on average to the cost of a vehicle, while a 20-per-cent levy would raise vehicle production costs by $1,800, the study said.
But they would not have the desired impact of causing auto-parts makers to shift production back to the United States from Mexico, Mr. Mosquet said.
"The value of the cheaper labour in Mexico is far higher than the cost of the BAT," he said.
"You need a huge BAT to really make it compelling to reshore manufacturing."
A border adjustment tax in the range of 40 per cent to 50 per cent would be required, he said.