President Donald Trump has called for severe border taxes when shipping products into the United States. Manufacturers that have facilities abroad will face steep penalties and when it comes to shipping their products to the United States and that may increase the price of vehicles dramatically. Consumers may find themselves paying almost 20% more for a new car than they would have without the new border tax. This could have a profound impact on not only the consumers, but it could be the deciding factor for auto-manufacturers when deciding where to build their next facility.
The new administration is extremely outspoken about their commitment to manufacturing here in the United States. With a tremendous push toward setting up new facilities and bringing manufacturing within our borders, Trump plans to institute these hefty border charges. When automotive manufacturers have been quoted saying “We’d kill to cut a nickel off the price of a car,” a 20% price hike could be the deciding factor to move most operations back to the United States.
Although this sounds like a solid plan upfront, many are wondering if it will be enough to jumpstart manufacturing hiring. Automotive hiring has been trending up but how much focus is put on the workforce when it comes to automotive manufacturing is the true question. Recently NBC news released an article that takes a close look at labor costs for automakers. It has people from the industry and related sectors asking if the required workforce for automotive manufacturers is large enough to sustain a revival in US manufacturing employment.
Labor is not the most expensive aspect of manufacturing a vehicle. NBC spoke to several senior industry executives and they explained when looking at $35,000 car, labor only makes up around 10%-15% of the sticker price. The most expensive area of automotive manufacturing is components. Components may make up around 60%-65% of the cars total cost according to David Andrea, analyst with the Center for Automotive Research in Ann Arbor Michigan.
Some vehicles like the Ford F-Series which are highly customizable lead to increased labor. However, not all vehicles offer the same kind of option, therefore a larger portion of the production line ends up being automated.
With all these factors it is still an important step forward to the US economy if more vehicles are manufactured within our borders. Less money will have to flow overseas and businesses will need to hire more individuals. Even if the job gains aren’t as high as anticipated, employment and US investments will climb. Manufacturers will be expanding their presence in the United States, upgrading facilities and building more factories. This has a dramatic impact on US industries up and down stream from the automotive industry. Only time will tell how much of a positive or negative impact the proposed border tax will have. Ideally, US manufacturing hiring and investments will skyrocket and the price of the vehicles will remain essentially the same.
Check back soon on Manufacturing Talk Radio as we keep a close eye on these developments.