Auto parts makers respond to tariffs, NAFTA uncertainty
- September 26, 2018
A recent Globe and Mail report (“Location, location, Michigan: Canadian auto-parts maker develops tech near Detroit”) explores the motives behind one auto parts supplier in consolidating some of its operations in the US.
Being closer to the Big Three, along with a number of other global car makers, was clearly one motive for Martinrea International, which opened a new product development and testing centre in Auburn Hills, Michigan, in May.
While avoiding the recent bout of US tariffs on Canadian steel and aluminum might seem like the main motive for the decision, in Martinrea’s case more routine business concerns had at least as much to do with it. As the company’s president and CEO Pat D’Eramo told the Globe’s Guy Dixon, Martinrea realized that it had to start doing more technology development in-house. It made sense to consolidate tech development efforts into an expanded facility (108,000 sq ft). In fact, much of the engineering, testing and R&D that has been moved to the new facility was already taking place at other, smaller facilities the company operated south of the border.
“It was a lot of simultaneous activity, and we wanted it all in one location where our engineers were and our testers were – so they can try new products out in the same location, as opposed to spreading out in four different locations,” D’Eramo said.
However, Martinrea’s manufacturing operations won’t be moving any time soon, D’Eramo said. As opposed to engineering, testing and R&D, manufacturing doesn’t need to be as close to the customer, so there’s less reason to move it. In addition to the metallic group in Vaughan, Martinrea does fluids process engineering mostly in Mexico, and aluminum process engineering in Germany.
Tariffs have hit Martinrea’s customers with rising materials costs. The company itself is finding alternative materials sources, or rerouting materials to and from its global plants to avoid the tariffs.
At the end of the day, D’Eramo believes that Job #1 is getting NAFTA settled. The current uncertainty is costing OEMs and suppliers alike a lot of money – money that ultimately can’t be used on long-term goals like improved competitiveness and expansion. The longer the tariffs – and the uncertainty – endure, the more likely suppliers and manufacturers will pack up and leave. And once capacity is gone, it’s very difficult to get back.