The United States, Mexico and Canada Agreement’s Impact on Cool Technologies’ Mexican Purchase Commitments

The United States, Mexico and Canada Agreement’s Impact on Cool Technologies’ Mexican Purchase Commitments

A number of shareholders have questioned the impact of the new USMCA trade deal on the Company. We don’t foresee a significant price impact on Class 3-5 Ford Pickup Trucks in the short term.

“The new deal is a big win for Detroit’s Big Three auto makers, which rely heavily on their factories in Canada and Mexico to build cars and trucks for the U.S. market and are less exposed to the new rules than foreign-based rivals because many of their vehicles already meet the stiffer requirements, some industry analysts say.” From an article by Chester Dawson and Adrienne Roberts dated October 1, 2018 on wsj.com: https://tinyurl.com/yc7cqegk

‘Lobbyists for all three of the Detroit-based auto makers applauded the deal and the Alliance of Automobile Manufacturers, a trade group representing 12 of the largest American and foreign-brand auto makers, called the pact an “encouraging development.”’ From an article by Chester Dawson and Adrienne Roberts dated October 1, 2018 on wsj.com: https://tinyurl.com/yc7cqegk

“But, auto experts cautioned that the new trade agreement is going to bump up car prices in the United States, especially small cars that used to be manufactured in Mexico but may not be able to bring across the border tariff free anymore.” From an article by Tirthankar Chakraborty dated October 03, 2018 on Zacks.com: https://tinyurl.com/ybvxwyxg

‘Thus, Ivan Drury, Edmunds’ Senior Manager of Industry Analysis rightly said that “the new regional value content requirements mean that automakers will not able to source parts as freely, so there will be added costs associated with vehicle manufacturing.” He added that “given that new vehicle prices are already stretched to record highs, things could take an ugly turn for consumer wallets.”’ From an article by Tirthankar Chakraborty dated October 03, 2018 on Zacks.com: https://tinyurl.com/ybvxwyxg

“Mexico is exempt as long as its manufacturing growth doesn’t exceed U.S. production, while Canada’s applies to far more cars than the country produces.” From an article by Andrew Ganz dated October 1, 2018 on thecarconnection.com: https://tinyurl.com/y8tqm2fl

As for electric motors … The new deal includes them under ‘complementary components’

“This includes a wide range of items, including catalytic converters, lighting, electric motors, and wiring sets, which have a lower regional value content to claim origination, from 62 percent in 2020 to 65 percent in 2023. This reflects the higher raw material costs sourced outside of the region, but still the USMCA’s authors desire to incentivize local, final assembly. As all forms of electrified vehicles increase in the market, products such as electric motors should grow in demand to justify localizing their manufacturing and counting their value in the USMCA formulas.” From an article by Lou Longo, Alejandro A. Rodriguez and Daron Gifford dated October 5, 2018 on the Plante & Moran PLLC (audit, tax, consulting, and wealth management) website: https://tinyurl.com/yb8c97sg

“As NAFTA swung incremental assembly capacity to Mexico when international vehicle manufacturers were ready to expand into North America, USMCA will likely spur incremental engine, transmission and other components for electric vehicles into North America to deepen the North American supply chain.” From an article by Dave Andrea dated October 7, 2018 on Forbes.com https://tinyurl.com/y7avec5c

Governmental approvals and tiered implementation will delay the impact.

“As with all multilateral trade deals, there is a great deal that remains in the USMCA for the signatory parties to define and determine in real time, post-ratification. With a five-year roll-in for many of the provisions, we will have to wait to see how the global automotive industry responds.” From an article by Dave Andrea dated October 7, 2018 on Forbes.com: https://tinyurl.com/y7avec5c

“The USMCA provides for “grow-in” periods to allow time for OEMs and suppliers to review sourcing strategies. Under these provisions, most content percentages and other provisions generally will be effective in 2023. This means that OEMs and suppliers will have five years to adjust the supply chain underneath existing vehicles and new vehicle introductions.” From an article by Lou Longo, Alejandro A. Rodriguez and Daron Gifford dated October 5, 2018 on the Plante & Moran PLLC (audit, tax, consulting, and wealth management) website: https://tinyurl.com/yb8c97sg

“Given that the majority of all timelines written into the USMCA begin Jan. 1, 2020, there’s a general perception that the United States, Canada, and Mexico will live under the current NAFTA agreement through 2019.” From an article by Lou Longo, Alejandro A. Rodriguez and Daron Gifford dated October 5, 2018 on the Plante & Moran PLLC (audit, tax, consulting, and wealth management) website: https://tinyurl.com/yb8c97sg

“In the meantime, the U.S. International Trade Commission is required to issue an economic impact analysis, and the U.S. Senate Finance Committee and the U.S. House Ways and Means Committee should hold public hearings and report out on the final text. It’s unlikely these items will go forward before the next session of Congress convenes in 2019.” From an article by Lou Longo, Alejandro A. Rodriguez and Daron Gifford dated October 5, 2018 on the Plante & Moran PLLC (audit, tax, consulting, and wealth management) website: https://tinyurl.com/yb8c97sg

Overall, we believe experts such as Mack McLarty, former trade advisor to Presidents Jimmy Carter, George H.W. Bush and Bill Clinton:

“The agreement keeps the North American supply chain intact and North America will continue to be more competitive in the world”. From an article by Jamie LaReau dated October 4, 2018 on The Detroit Free Press website: https://tinyurl.com/ybbzawx9

2018-10-09T19:30:55+00:00
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