North America Needs a Joint Approach to Handle Common Concerns

You can watch the video of this panel here.

The automotive industry is going through deep changes as new technologies reshape diverse aspects of the sector, from a vehicle’s carbon footprint to mobility itself. Moreover, the COVID-19 pandemic has cut vehicle production and sales to a fraction of what they were before. Under these circumstances, carmakers in North America must take a joint approach to handle the challenges brought by changing customer preferences, agreed speakers during the panel “Consolidating North America's Automotive Hub.” During Mexico Automotive Summit on Wednesday, Mar. 24, representatives from the automotive industries of Mexico, the US and Canada discussed addressed the region’s leading vehicle and auto part manufacturing trends driving the sector.

A year into the COVID-19 pandemic, the automotive industry keeps moving forward in North America, propelled by different factors including USMCA. “NAFTA was a pretty decent trade agreement but it was 25 years old and it did not take new technologies into consideration. USMCA will incentivize the use of new technologies, such as electric transmissions,” said David Adams, President of Global Automakers Canada. Thanks to USMCA and the strong collaborative practices built by its three members, the region’s automotive industry is expected to continue growing, especially after the recent change in the US administration. “With the new US administration, we are seeing a much better alignment of policies and more potential for collaboration,” said Jean-Francois Champagne, President of AIA Canada.

John Bozzella, President and CEO of The Alliance of Automotive Innovation, explained that the Biden administration has four priorities: addressing the COVID-19 pandemic, fixing the US economy, fighting climate change and social justice. “We are looking at a new administration that takes climate change very seriously,” said Guido Vildozo, Senior Manager, Americas at IHS Markit. The shift in approach toward climate change actually puts the US back in track with international treaties, leading to growing attention in sustainable vehicles.

“USMCA’s rules of origin modernize the industry’s approach to technology. There is now a greater trend towards electrification and more sustainable vehicles. A modernized USMCA should give the industry opportunities,” said Bozzella. The treaty is expected to generate more opportunities for the three countries to embrace newer, more sustainable technologies, but there are still numerous barriers slowing down their introduction. “The need to generate the smallest carbon footprint is one of the factors boosting electric and hybrid vehicles in Mexico. But these vehicles represent only 2.6 percent of the total vehicle sales in the country,” said José Zozaya, President of AMIA.

Champagne highlighted that these new vehicles could not easily replace internal combustion vehicles in all cases, however. “Canadians drive larger distances and use larger vehicles that are not as ready to transition toward electrification,” said Champagne. Bozzella also remarked that to fully adopt electric vehicles, the sector needs to substantially invest in infrastructure. “Automakers and suppliers have already invested over US$250 billion in electrification,” he said. “The US has 2 percent of the global market of electric vehicles. If we want to increase that, we have to make significant investments in infrastructure.”

Another trend redefining the automotive industry is the perception of mobility as a service. “Users are no longer interested in owning a vehicle but in having access to a vehicle when they need it,” said Zozaya. While older generations placed great importance in owning vehicles, younger generations are mainly interested in access, allowing technology providers to gain a foothold in the industry and leading manufacturers to reevaluate their approach. “Vehicle manufacturers are beginning to define themselves as mobility providers,” said Adams. However, the growing use of mobility apps is also raising concerns among carmakers and users. “There are now global conversations about data privacy in light of a fleet that might be shared rather than owned,” said Champagne.

Altogether, the adoption of new technologies, which accelerated even further in light of the COVID-19 pandemic, is forcing carmakers to remain flexible to stay ahead. “OEMs have to identify new technological solutions, partner with technology providers and increase efficiency through new talent and business models,” said Zozaya. However, the automotive industry also needs support in the shape of joint policies and approaches that unify the region’s efforts to consolidate and strengthen the sector. “We need complimentary policies in the region that support these goals,” said Bozzella.