General Motors Co. GM +0.32% said Friday it would open a supplier park near its Arlington, Texas, sport-utility factory, resulting in the relocation of about 600 jobs from Mexico to the U.S. and a higher concentration of American-made parts in Chevrolet Suburbans and Cadillac Escalades.
[Mike Colias & William Mauldin] June 16th, 2017 [The Wall Street Journal]
Many of those U.S. employees will work for Luxembourg-based interiors supplier International Automotive Components Group, founded by billionaire investor and U.S. Commerce Secretary Wilbur Ross. IAC will anchor the supplier facility.
The decision comes as the Trump administration considers changes to the North American Free Trade Agreement and as Republican lawmakers weigh a border-adjusted tax, both of which could make it more expensive for companies to import parts from abroad. Boosting the number of U.S.-made parts could alleviate some trade risk for GM’s most-profitable vehicles, the hulking SUVs assembled at its Arlington factory.
GM is one of several manufacturers rethinking the wisdom of shipping intermediate products through far-flung supply chains. Once thought of as a strategy to lower costs, overreliance on a global parts network is perceive to be a risky bet due to political shifts, protectionist measures and even natural disasters.
The auto maker earlier this year announced plans to add about 1,500 factory jobs in the U.S. in the wake of public criticism from President Donald Trump of GM’s Mexican imports.
The company said both the 1,500 jobs and the 600 supplier jobs were planned before Mr. Trump’s election. The new supplier park is aimed at trimming logistical costs and benefiting from of other advantages that could result from proximity of parts to the assembly plant, GM purchasing chief Steve Kiefer said in an interview Friday.
Mr. Trump has set in motion a renegotiation of the 23-year-old North American Free Trade Agreement, which has set the ground rules for Detroit and foreign-based auto makers operating in the U.S., Canada and Mexico.
The SUVs assembled at GM’s Arlington plant have among the highest Mexican content of any vehicles produced in North America, according to the National Highway Traffic Safety Administration. The SUVs contain 49% U.S.-or Canada-made components, while 38% of the parts come from Mexico, the agency says.
Among U.S. officials’ most frequently mentioned objectives for Nafta talks is a revamp of the “rules of origin,” which regulate how much of a car—or auto part—must be produced in North America to be eligible for duty-free shipment across the Mexican or Canadian borders.
Shifting some parts production north to Texas reduces the risk of costs related to a border tax that U.S. lawmakers have proposed, potential tariffs Mr. Trump has threatened, or a newly negotiated Nafta. Mr. Trump has even threatened to pull the U.S. out of Nafta, a move that would likely result in immediate tariffs at the border.
GM Chief Executive Mary Barra is a member of Mr. Trump’s business council. The jobs announcement comes as GM trims thousands of assembly jobs in the U.S. to counter sluggish sedan sales.
GM next year will open a 1.2 million square-foot facility on the site of a former retail mall less than 2 miles from the factory. A handful of suppliers are expected to locate in the facility.
IAC supplies some content for the current SUVs, but won more business on the next-generation trucks, which industry analysts expect to go on sale in 2019. IAC will supply the bulk of the truck’s interiors, including consoles, instrument panels and door trim.
About 1,250 hourly and salaried workers from IAC and other suppliers will work at the facility. Roughly 600 of those employees will replace work that had previously been done by suppliers in Mexico, GM spokesman Nick Richards said.
GM has located supplier operations near several other U.S. assembly plants in recent years to cut logistics costs, Mr. Kiefer said. The setup reduces inventory, makes it easier to tweak production schedules and can help spot and fix quality lapses more quickly, he said.
The strategy is part of a broader effort by GM to squeeze out $6.5 billion in annual costs by 2018, compared with four years earlier. Mr. Kiefer said savings from supplier parks and other logistical moves is contributing about $1 billion to that goal.
Mr. Kiefer acknowledged that some of those savings are offset by higher labor costs in Texas compared with overseas markets but called it “a positive trade off.” He said the creation of U.S. jobs is “a great byproduct” of the strategy but said it wasn’t the primary factor.