The rise of protectionist governments threatens key free-trade zones such as NAFTA and the European Union, putting the auto industry’s reliance on open borders and smooth trade in jeopardy, Magna International Inc. says.
The warning came as the Canadian auto parts giant announced record annual sales and a 10-per-cent increase in its dividend after strong vehicle production in North America and Europe in 2016.
“The automobile industry is a highly globalized industry which is currently dependent on open borders and the free movement of goods, services, people and capital, particularly in Europe and North America,” Magna said on Friday in a statement of risk factors accompanying its 2016 financial results.
The industry has been on edge after U.S. President Donald Trump’s threats via Twitter last month to impose border taxes on vehicles being imported into the United States from Mexico and his earlier comments that he is prepared to tear up North American free-trade agreement.
The wording of the warning from Magna about the dangers of protectionism is more explicit than the risks the company outlined in its third-quarter financial statement.
That statement pointed to Brexit as leading to possible economic uncertainty in Europe and the November election of Mr. Trump as possibly leading to protectionism or other factors that might affect consumer confidence.
On a conference call Friday to discuss the financial results, Magna chief executive officer Don Walker said it’s too early to know whether the Trump government will tear up NAFTA, impose a border tariff, take some other action that might affect trade or do nothing.
“It will be quite a while before we understand what the changes might be – what the impact will be,” Mr. Walker said. “We are very closely watching and having involvement in any discussions. Any border-adjustment tax would be negative for the whole industry.”
Mr. Walker and Magna are part of several industry-wide initiatives in both Canada and the United States working to inform governments about the importance of NAFTA to auto makers and their suppliers and the dangers of ending the agreement or imposing tariffs or border taxes.
One of the key issues for Magna, which has about 30 plants in Mexico and generates about $4.5-billion (U.S.) in revenue there annually, is what happens to future investment by auto makers, Mr. Walker said.
“If somebody’s thinking about making a major investment in a new assembly plant, based on everything that’s going on, there’s probably a larger likelihood that they’ll put that in the U.S. if they were making that decision now,” he said.
About 60 per cent of Magna’s sales in Mexico consists of parts sold to auto makers operating in that country, chief financial officer Vince Galifi said on the call. Most of the rest is shipped to U.S. assembly plants.
The company’s $6-billion worth of sales in Canada are split mainly between customers in Canada and the United States, he said. And about 90 per cent of Magna’s $9-billion worth of U.S. sales go to U.S. vehicle factories, while the rest is split evenly between Canada and Mexico.
Mr. Walker reiterated earlier comments that Mexico is vital to North America because labour-intensive manufacturing such as sewing and cutting covers for car seats is much cheaper there than in the United States and Canada. North America needs a low-cost country to compete with other trading blocs such as Europe and Asia, which have access to low-cost labour to help keep a lid on overall costs, he noted.
Magna will raise its quarterly dividend to 27.5 cents a share, the eighth consecutive annual increase in the payout.
Sales hit a record $36.45-billion, up 13 per cent from $32.13-billion a year earlier.
Final profit rose to $2.074-billion, or $5.19 a share, from $1.94-billion or $4.94 a share.Report Typo/Error