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Ford Motor Company’s electric F-150 Lightning is currently being produced at the Rouge Electric Vehicle Center in Dearborn, Michigan, as of September 8, 2022.
DETROIT – In a recent statement, former President Donald Trump suggested that extending the timeline for the implementation of 25% tariffs on automobiles could provide manufacturers with additional time to enhance or establish production capabilities domestically.
“They need a little bit of time because they’re going to make them here,” Trump stated on April 14. “But they need a little bit of time, so I’m talking about things like that.”
Industry leaders generally concur that additional time would be beneficial; however, the process of reinforcing U.S. manufacturing is fraught with complexities.
Notably, an impending tariff on auto parts is set to be enforced by May 3, which could escalate vehicle costs, irrespective of whether they are assembled in the U.S. or imported.
Moreover, the notion that automobile manufacturers can swiftly relocate production facilities, as some politicians have suggested, is rather misguided. The transition of production lines necessitates extensive planning and substantial investment, often taking years to finalize.
Building a new assembly plant involves numerous factors, including workforce recruitment, developing essential infrastructures such as water and energy supplies, and establishing a reliable parts supply chain. This complexity is compounded by site selection, purchasing, and navigating zoning regulations.
For instance, Hyundai Motor’s new 16-million-square-foot facility in Georgia demands thousands of acres and extensive factory space.
“All of those things have to fall in place,” remarked Doug Betts, president of J.D. Power’s automotive division. “It’s a very, very complicated process.”
The permitting phase for new plants alone can range from six to 12 months, followed by a year or more for actual construction, and an additional year for tooling and ramping up production, according to Collin Shaw, president of the MEMA Original Equipment Suppliers association.
Trump’s focus is primarily on large, multi-billion dollar assembly facilities that function more like manufacturing cities, incorporating various supporting facilities such as body shops and paint plants. Even smaller supplier facilities capable of adapting more quickly can still take years to establish, particularly if they are situated near larger manufacturing plants, as industry experts note.
During a recent discussion with CNBC, Christian Meunier, chairman of Nissan Americas, echoed the consensus that localization is essential, but cautioned against the notion that it can happen rapidly. “Nissan is very fast, but it’s not going to be a matter of months; it’s a matter of years,” Meunier said.
This week, a coalition of six influential policy groups from the U.S. automotive sector surprisingly came together to urge the Trump administration to reconsider the upcoming tariffs on auto parts.
“President Trump has indicated an openness to reconsidering the administration’s 25 percent tariffs on imported automotive parts – similar to the tariff relief recently approved for consumer electronics and semiconductors. That would be a positive development and welcome relief,” their joint letter stated.
New plants
The most effective method to boost U.S. production is by optimizing existing facilities, which already have established supply chains, similar to the strategy Nissan is pursuing.
On the other hand, building a new assembly plant, while a more expensive option, offers broader benefits for local economies as suppliers localize production for certain components.
According to a 2022 report from the Alliance for Automotive Innovation trade group, each job created in vehicle manufacturing supports an average of 10.5 additional American jobs.
The recent construction of Hyundai’s “Metaplant” in Georgia exemplifies the investment needed to establish new manufacturing facilities. This $12.6 billion project, which President Trump has highlighted as a triumph for American manufacturing, was constructed in approximately 2½ years, not including the lengthy processes of site selection and permitting.
Hyundai’s timeline was relatively swift given the scale of investment and the plant’s potential to produce 300,000 vehicles annually, with an estimated employment of 8,500 jobs by 2031.
Mark Wakefield, a partner and global automotive market lead at consulting firm AlixPartners, noted, “If you’re building a brand new one, you’re going lightning fast to get it done in two years, and you have to have everything ready to go. More likely, it’s in the four-year type of range.”
Stellantis, the parent company of Jeep, similarly transformed two powertrain plants into Detroit’s first new assembly facility in nearly 30 years within a construction timeframe of 2.5 years, investing $1.6 billion in the process.
There are exceptional cases where automakers have expedited construction, such as Tesla’s facility in China, which reportedly opened in under a year thanks to the support from local authorities.
Quick actions
Beyond building entirely new manufacturing sites, there are opportunities to boost U.S. production in a more expedient and cost-effective manner. Automakers can leverage existing facilities that have excess capacity or utilize multiple locations to manufacture popular products.
General Motors, for instance, employs various plants to produce its high-volume vehicles. The company increased its output of full-size pickup trucks at its assembly plant in Fort Wayne, Indiana, on the same day Trump’s 25% tariffs were implemented, hiring hundreds of temporary workers as part of this strategy.
Focusing on their most lucrative models, automakers frequently invest billions in plant renovations for transitions or to facilitate dual production of newer and older vehicle models.
However, hastily executed moves can lead to complications. To minimize production disruption of the Ford Explorer SUV in 2019, Ford invested $1 billion to overhaul its plant in Illinois, completing the upgrade in a remarkably swift 30 days. However, the launch was severely problematic, leading to extensive recalls that cost the company billions. Ford characterized this effort as “one of the most complex renovations in the company’s history.”
“Being out of production in a segment is devastating,” Betts stated, drawing from his experiences at various industry leaders, including Apple and Stellantis.
Betts explained that most companies adopt a “daisy chain” approach, building a new plant for a forthcoming model while continuing operations on the older one. This method facilitates a smoother transition but requires adequate space and financial resources.
Furthermore, auto manufacturers need assurance that regulations and trade policies will remain stable throughout construction, avoiding potentially avoidable expenses running into billions of dollars.
Swamy Kotagiri, CEO of Canadian auto supplier Magna, emphasized the complexities involved: “We have to look at it from a pragmatic perspective. I don’t see how you can just pick up something and move. It sounds easy, but it’s not.”
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