Aftermarket Industry Set to Roll With Policy Punches

March 22nd, 2017 by David Beran

Profitability has been spiking in the auto industry for the past two years and consumers’ seemingly bottomless craving for pickup trucks and SUVs have been a boon for the aftermarket auto parts industry as well. Owners love to modify their new vehicles with truck and Jeep parts and accessories suppliers are outfitting 4x4s with tires and wheels, suspension products, bumpers and lighting at a record clip.

According to government data, over $100 billion in vehicles and $100 billion in auto parts were shipped to the United States from Mexico in the past two years. In 2015, Mexico overtook Canada as the largest export market for U.S. auto parts. As the United Kingdom follows through on Brexit, automakers are seeking to maintain tariff-free trade with countries in the EU’s customs union. Without free access to these markets, their substantial investments in plants may be in jeopardy and European consumers could be hit with a significant spike in vehicle prices.

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Since the 1990s, Mexico has been a destination for automakers due to its cheap labor and free-trade deals that give it unrestricted access to markets. North America’s big three automakers – Ford, Fiat Chrysler and General Motors – have invested substantially in manufacturing in Mexico. In a determined effort to increase American auto jobs, President Trump has hinted at the idea of imposing a significant border tax on companies relocating their manufacturing plants out of the country. Automakers are waiting to see if this proposed border tax will gain traction and their responses range from concern to overall confidence in the industry remaining vibrant and profitable.

Counteracting the blindsiding effects of a possible border tax is Trump’s promise to lower corporate taxes and ease regulations that would make doing business in the United States more lucrative. “When you combine it with some of the other aspects of the blueprint like the lower tax rate… that’s what gives us, at least for now, a positive point of view on that particular proposal,” said Ford CFO Bob Shanks.

Ford recently announced a major investment in its domestic facilities in Michigan to keep up with the demand for trucks and SUVs. Specifically, their plant in Wayne, Michigan is slated for updating to build new Bronco SUVs and Ranger pickups. Joseph Hinrichs, president of Ford’s Americas division, pointed out that this initiative is building on Ford’s strengths and not a direct response to Trump’s agenda. “As America’s top producer of automobiles, we are proud to be going even further in our commitment to invest in manufacturing here at home,” said Hinrichs. “These products are well positioned for where consumers are now and where they are going.”

Delving into the relationship aftermarket parts would have with proposed policy changes is complex. With Mexico ranking as the seventh largest worldwide light vehicle producer worldwide, there are also a multitude of OEM auto parts suppliers based there. Major Mexican imports of auto parts include factory components such as engines, seats, automatic transmissions, differential axles and clutches, but these are not aftermarket parts. A significant portion of aftermarket parts are Asian-produced and proposed tariff hikes would affect these being exported to the United States.

U.S.-based companies including Tuffy, Poison Spyder and MagnaFlow design, engineer and manufacture their entire aftermarket product lines domestically for domestic consumers. This bypasses any potential ill effects that Stateside 4×4 owners would experience should tariffs eventually be imposed.

Auto executives met with President Trump in the Detroit area on March 15 to discuss the industry’s future. That day, GM announced that it was creating or maintaining roughly 900 auto industry jobs in Michigan to bolster manufacturing of its new SUVs and trucks. At the Detroit Auto Show back in January, Fiat Chrysler CEO Sergio Marchionne said his company would consider completely withdrawing from Mexico if tariffs got too high.

The reality of today’s vehicles is that different parts are manufactured in different locations, including Mexico and Canada. United States has free trade agreements with 20 countries, compared to Mexico’s agreements with 45 countries including Japan and the EU. If President Trump’s tariffs materialize, price points on vehicles built domestically could rise dramatically. Automakers could absorb the costs, pass them on to consumers or opt for some combination of the two. The landscape bears a resemblance to what is happening in Europe with the possibility of a hard Brexit throwing a wrench into circulation of auto components between production sites throughout the continent.

Currently, attractive financing rates, low gas prices and robust product lineups have created a perfect incubator for unprecedented growth in U.S. auto sales. Similarly, aftermarket parts sellers have experienced consistent growth in recent years, with e-commerce comprising an increasing share. It remains to be seen how proposed tariffs would impact the aftermarket industry that is poised to continue to thrive with the overall auto industry.

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About the Author: David Beran

As a professional inkspiller living in Los Angeles, I’ve written in industries ranging from entertainment to employment to automotive. Terrain I cover includes off-road events and races, budget builds, custom mods, EVs and the latest innovations in aftermarket 4x4 parts. I’m always eager to learn about new trends in 4x4s and my motto is “go off-road or go home.” Google+ is the destination for my dispatches: https://plus.google.com/+DavidBeran/posts.

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