The Time May Be Right to Explore Contract Vehicle Assembly

With ever-changing consumer tastes and uncertain trade tariffs, and increasing vehicle assembly levels, the time might be right to establish contract assembly operations in the United States. Automotive history shows that in the 1980’s, Cars & Concepts as well as American Specialty Cars provided niche convertible conversions of mass production vehicles.  Some say this could be due to the contrast in the assembly business model. The economics and labor dynamics – at least for the convertibles – drove the production back to the main assembly plants.

Many have reacted to Volkswagen’s announcement to end the production of the VW Beetle and Ford’s announcement not to import the Focus Active from China into the United States.

In the grand scheme of a 17-million-unit sales market, some would make an argument that at a dealership- and manufacturer-level, the ability to offer a niche-volume product, in the case of the Beetle, or flexibility to import product from global assembly operations, with the Ford Focus Active, matters. Niche vehicles such as the Beetle drive brand loyalty with unique styles for first-time buyers before moving into exile. For those families having the luxury to own more than that one practical vehicle in the garage, a halo vehicle offers a fun vehicle to drive and be seen in. Both situations drive dealer showroom traffic.

Ford dealers lost an entry-level vehicle to tariffs. There will be other options on the new vehicle side with aggressive financing packages or on the used vehicle side – that will offer utility at an affordable price. However, it will be one less option for the consumer and for Ford to balance out its global manufacturing operations by exporting vehicles from one region to another.

Considering these two examples, there might be an emerging case for contract assembly in North America, as Magna Steyr – as an example – offers in Europe and Asia. Unique body styles and price points have stayed in a manufacturers’ product portfolio. Also, with the U.S. – Mexico – Canada Agreement incentivizing greater powertrain localization, there might be a case for localizing the production of a small volume nameplate in a contract assembler that would use that last incremental engine or transmission output needed to justify building a North American engine or transmission plant module.

With the U.S. market becoming more fractionalized in vehicle nameplate sales and with greater uncertainty over the ability to import and export vehicles and components between regions, the time may be right to re-test the business case for contract vehicle assembly.