Nemak already complies with new USMCA rules, company officials say

The content rules in the new trade agreement between the United States, Mexico and Canada (USMCA) do not represent a challenge for Nemak, as the Nuevo Leon-based manufacturer already complies with the specifications established by the new regulatory framework.

“Nemak already exceeds the threshold of regional value content for the main components, while the section of wages that establishes a content made by workers under a US$16 an hour salary applies to car manufacturers, but not directly to suppliers,” said during the third quarter conference call Eduardo Escalante, CFO of Alfa, Nemak’s parent company, according to a report by Forbes Mexico.

Such views were backed up by Nemak officials at their own conference call (mp3), who also considered that the new agreement is an opportunity to increase the integration in the North American region.

“In our view, this agreement represents a positive step forward, leading to much needed certainty to the future of trade in North America. As you may already be aware, one of the USMCA’s key provisions is an increase in the regional value content, which I will call RVC, from 62.5% to 75% (…) I believe this increase creates a potential opportunity for the regional auto parts industry to grow as some automakers may have to produce more in the region to qualify for the exemption,” said Armando Tamez Martínez, Nemak CEO.

“Our company, whose RVC stands at 90% plus, is in a unique position to serve that potential future market. Consider that approximately 3 million vehicles are imported each year from outside the region, mostly from Asia and Europe; taking into account that the USMCA, together with the potential for additional trade actions by the U.S. government, we believe it is possible that automakers will consider relocating part of its production to North America in the coming years,” Tamez added.

In the third quarter of 2018, Nemak reported earnings (EBITDA) of US$160 million, which meant an increase of 5%; while revenues totaled US$ 1.15 billion, 5% more than a year ago, due to higher sales volumes.

During the quarter, Nemak invested US$72 million in new program launches and boost operational efficiencies in all regions. Net debt at the end of the third quarter was US$1.3 billion, a 6% reduction compared to the same period last year, reflecting the generation of cash in the quarter.

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