Here's What Parts Companies Are Afraid Of If The U.S. Changes NAFTA

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Good morning! Welcome to The Morning Shift, your roundup of the auto news you crave, all in one place every weekday morning. Here are the important stories you need to know before the Lord returns to judge the quick and the dead.

1st Gear: Parts Makers Fear NAFTA Exit

The Trump administration is set to finally renegotiate the North American Free Trade Agreement like it promised during the campaign. (It’s been great on delivering campaign promises as of late.) After a number of threats and setbacks, the concern remains that this will drive up the cost of cars in the U.S. rather than actually bring any jobs back.


This concern is reiterated in a new study from Boston Consulting, reports The Detroit Free Press:

According to Mosquet, leaving NAFTA would lead to the loss of about 25,000 to 50,000 jobs at U.S. auto suppliers.

Why? Because Mosquet says ending NAFTA would result in higher vehicle prices leading to a decline in car sales and an increase in prices and that would lead to decline in parts produced by auto suppliers with plants in the U.S.

The study estimated U.S. tariffs in a range from 20% to 35% would add $16 billion to $27 billion annually to costs at automakers and their suppliers. A 20% tariff would increase the production cost per vehicle by $650.

President Donald Trump, who campaigned on the slogan “America First,” has said he wants to bring back automotive jobs that have moved to Mexico. Earlier this week, the Trump administration released its negotiating priorities for talks with Mexico and Canada to negotiate a new agreement.

The Trump administration would like to complete a renegotiation of NAFTA by the end of this year, before elections take place in Mexico next year.


The study argues NAFTA has made the U.S. auto industry more efficient and enabled the North American region as a whole to stay competitive with Asia and Europe.

2nd Gear: The Anti-Sedan

Everybody knows the deal: sedan sales are falling off a cliff. Gas prices are cheap so Americans want those trucks and crossovers and SUVs instead! But automakers aren’t giving up on sedans as their appeal becomes, uh, more selective. And in some places they are taking more risks.


Take, for example, the 310 horsepower 2018 Buick Regal GS. Not only does it have a V6 instead of a turbo four—blessed be!—it is technically a hatchback, not a sedan with a trunk. It’s a neat car and definitely something different for Buick.

And while it may not end up an SUV-killing volume seller, different is kind of the point here, reports The Detroit News:

Buick brand sales are up 5.9 percent for the first six months this year, but Regal sales have fallen by nearly 30 percent year-over-year to about 6,500.

Dave Sullivan, manager of product analysis for AutoPacific Inc., said the research firm expects about 28,000 Regals to be sold in their first full year on the market, a good figure for the brand but below historical highs for the Regal.

“The Regal is kind of almost the anti-sedan,” he said. “It’s not something that’s going to be for everyone. A Sportback body style is unique, but I think that’s part of the appeal for it.”


While it is definitely a sedan—albeit a fastback—another good example is the new 2018 Honda Accord, which feels like a fresh and different approach to this once-great segment. I’m all for automakers taking risks, so this is good to see.

3rd Gear: Chrysler Dropped The ‘Plug-In’ Because People Are Dumb

Meanwhile! In minivan-land, Automotive News has noticed that Chrysler doesn’t call its electrified minivan the Pacifica Plug-In Hybrid everywhere. It’s just the Hybrid in most places, even though it does plug in, and that’s because Americans are scared shitless of the plug concept and running out of juice.


Except in cool and hip California!

Fiat Chrysler Automobiles has taken a curious approach to marketing the only minivan in the U.S. that can run on a rechargeable battery: just call the Pacifica model a hybrid, and leave out the plug-in part.

The omission is a deliberate one by the automaker’s marketing team because so many Americans still associate the word “plug-in” with risk of running out of battery. It will make one exception though, starting Thursday, in a single state: California.

The contingent of California buyers that are interested understand the value of plug-in hybrids, said Jessica Caldwell, a Santa Monica-based analyst with auto-market researcher Edmunds. In addition to being more fuel efficient than conventional hybrids, they qualify for bigger government incentives.

“In California, it’s not seen as something that’s negative,” Caldwell said of plug-in hybrids. “It’s seen as like ‘that’s cool, that’s progressive.’”


I don’t think anyone looks great here, except Chrysler, which seems to know its audience, dumb or smug as they may be.

4th Gear: No One Has Figured Out The Lithium Supply Issue

If you haven’t read Allana Akhtar’s story on how a raw materials shortage—lithium and cobalt in particular—could kneecap the burgeoning electric car market, you should. This Reuters story is all about how lithium suppliers are working to address this problem, but the truth is no one has it figured out yet. And in a few years that’s going to be a serious problem.

If it is being wrong-footed by the speed of change in lithium battery usage, it’s a fair bet that everyone else is struggling to make sense of such dynamic fundamentals.

The potential for supply-demand gaps to open up over the coming decade is significant.

Even a hardening consensus that there will be enough supply for the next two or so years rests on a series of questionable assumptions about how efficiently new supply can be brought on stream and then integrated into the existing production chain.

Beyond that short-term timeframe, the uncertainties just grow ever larger.

Joe Lowry, lithium industry consultant and commentator, takes the view that even with the recent spate of new project announcements, it is quite possible that a “supply shortage will cause significant issues in the battery supply chain by 2023.” (“Lithium Investment at the Crossroads”, July 17, 2017).

Even relatively advanced projects are still struggling for finance despite all the media hype around lithium, according to Lowry, while Tesla’s charismatic chief executive Elon Musk “seems to think that if he builds cars, the lithium will come.”


That is a lot to assume!

5th Gear: Volvo Strengthens Link With Lynk

Lynk & Co, Chinese automaker Geely’s ambitious experiment in mobility and new car sales models, is about to get a boost from its Swedish corporate cousin. That’s good news for them. From Automotive News:

Volvo also will set up a joint venture with its Chinese parent, Zhejiang Geely Holding, to share existing and future technology with other brands in the Geely family.

“We want to have a say in the further development of Lynk & CO, especially as this will be a company that will share a lot of technology and components with Volvo,” Volvo CEO Hakan Samuelsson told Automotive News Europe.


Zhejiang Geely will control 50 percent of Lynk & CO. The remaining 50 percent will be divided between the Geely Automobile and Volvo brands. Samuelsson said the actual percentage that each brand will hold still needs to be determined.

Reverse: Suck It, Nader


Neutral: What Will A NAFTA Renegotiation Do?

Save American jobs from Mexico or torpedo an increasingly global auto industry and this country’s place in it?