Editor’s note: Going local

01 February 2018 | Nick Holt

<strong>Not too long ago ‘global’ was the buzzword and in the context of automotive manufacturing it encompassed expanding worldwide networks of vehicle makers and tier suppliers, which benefited in part from low-tariff trade agreements</strong>.

However, the world continues to change and globalisation has taken on a less benign connotation. Although the idea has long been the target of protest from groups outside of the political and economic establishment, there has been a shift and now the mood of both governments and voters has become much more inward looking.

Increasing levels of localised content has, for a long time, been a major way in which vehicle makers have been able to reduce costs, but where taxation and import tariffs are favourable there is less incentive to do this. A big factor in the spread of globalised manufacturing networks has been the proliferation of trade deals and so called ‘frictionless boarders’ but events such as the Brexit vote have forced OEMs to refocus on the need to localise content before potentially higher tariffs are imposed and boarders cease to be as open, especially for those OEMs producing in the UK.

In the US, Donald Trump’s promise to ‘make America great again’ has seen a return to a more protectionist economic stance (at least in intent if not action). Indeed his verbal attacks on domestic carmakers manufacturing outside the US (focusing mainly on those investing heavily in Mexico) and the promise to renegotiate NAFTA to favour American interests or pull-out of the agreement altogether have certainly made OEMs sit up and take notice when planning their manufacturing strategies.

Economic as well as political factors have weighed in against the tide of globalised production. In an attempt to stimulate manufacturing in Brazil the government there applied a complex series of tariffs and taxes (Inovar-Auto programme) aimed at the importation of vehicles and components produced elsewhere. In Russia, localised content was part of a government programme (Decree 166) to encourage investment and although all vehicle makers in the country have suffered sharp declines in sales and production as the Russian economy slumped, those sourcing a high percentage of localised content have been better placed to manage costs.

For the automotive industry its global manufacturing footprint is an intrinsic part of the operating structure and that won’t change, but the importance of localised content has certainly grown if OEMs are to insulate themselves from political and economic shocks.

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