Cox Automotive Economist Discusses Potential Impact Of Border Shutdown On Auto Industry
AUDIE CORNISH, HOST:
For now, President Trump's threat to close the border is only that - a threat. But there are concerns that threat could have far-reaching consequences for the U.S. economy, especially the auto industry. We're going to talk about some of those consequences now with Charlie Chesbrough. He's a senior economist for Cox Automotive. Welcome to the program.
CHARLIE CHESBROUGH: Thank you.
CORNISH: How closely tied are the U.S. auto industry and factories in Mexico?
CHESBROUGH: Oh, they're very closely tied. Many vehicle parts and vehicles are assembled in Mexico that are sold here in the United States. And really all of the North American supply chain, through the NAFTA agreement that was signed in the early 1990s, has really caused Mexico and Canada and the United States to be fully integrated in the supply chain for the automotive industry. And that's why the president's threat with Mexico and shutting down the border would really be quite disastrous for the automotive industry.
CORNISH: How quickly would we see a border closing impact the U.S. auto industry?
CHESBROUGH: Well, really, we would start to see manufacturing facilities impacted almost immediately. Most of the industry follows a just-in-time inventory strategy, which means that the parts that are needed for the vehicle are shipped to the plant as they are needed and on a continual basis. They don't maintain inventory levels at the assembly plant. So we would see a number of factories start to shut down almost immediately because they wouldn't have inventory available to keep going.
CORNISH: Is it possible for you to paint a picture of this for us using a specific car part, for example?
CHESBROUGH: You know, there's a couple interesting ones. One, wire harnesses - these are the wires that are - that go into a vehicle. There's probably miles of these copper wires in a vehicle, very labor-intensive to put these wire harnesses together. The vast majority are made in Mexico that are used in U.S. manufacturing. And so that's something that would be very important for a vehicle because it goes on early in the process.
Another vehicle part that's kind of interesting is the seats on vehicles. And there's a number of seat manufacturers in the South of the United States that are doing a leather trim or seat covers. And those vehicles go over the border to Mexico for very refined stitching of some of the leather. And then it comes back to the United States. And it may go back-and-forth over the border a number of times before it ends up being put onto a final vehicle assembly.
All of those supply chains would almost immediately be disrupted if the president went forward with shutting down this border.
CORNISH: What kind of money are we talking about here? How much could automakers lose, even in a quick border closing?
CHESBROUGH: Well, it's really all over the map. But it has been estimated that if the factories in the U.S. had to shut down as a result of this, if this went on for, you know, a couple of weeks, we'd be talking in the billions of dollars - probably 10 to 20 billions of dollars - that the manufacturers themselves would have to eat because they'd have to shut down these factories. And that's just something that the industry does not need right now, as we're trying to deal with, already, a vehicle market that's starting to slow a little bit.
CORNISH: As someone who watches this industry, are people freaked out yet, even though it's just a threat?
CHESBROUGH: I don't think too many people take the president seriously regarding this proposal that he's throwing out there. It would really inflict too much pain on the U.S. economy for not as much gain as we might get in leverage over Mexico regarding immigration issues. You know, the U.S. economy would start suffering almost immediately as plants around the country would have to start laying off workers. And the longer that this shutdown would go on, the more quickly and the more severe it would spread around the United States.
And so I don't think many folks within the industry take the president too seriously with this particular proposal.
CORNISH: Charlie Chesbrough is a senior economist with Cox Automotive. Thank you for talking to us.
CHESBROUGH: Thank you. Transcript provided by NPR, Copyright NPR.