Despite early concerns, the impact of the new United States-Mexico-Canada Agreement has been “very minor” for the Canada-based BRP, Chief Financial Officer Sebastien Martel said on the “Plug-In with Powersports Finance” podcast.
The Trump administration in 2018 created the USMCA, an updated version of the North American Free Trade Agreement (NAFTA). Sometimes referred to as “NAFTA 2.0,” the USMCA includes major changes regarding cars and new policies for labor and environmental standards, intellectual property protections, and some digital trade provisions.
Regarding auto and powersports, the USMCA will require automobiles to have 75% of their components manufactured in Mexico, the U.S. or Canada — as opposed to 62.5% under NAFTA — to qualify for zero tariffs.
BRP, which is based in Valcourt, Quebec, is a global company that manufactures vehicles in regions such as North America, Mexico and Europe, shipping goods to more than 105 countries. As such, the OEM is subject to free trade agreements, and the USMCA has been “one of the big topics of discussion” for BRP over the last few years, Martel said.
“For us, the way I looked at it before we started knee-jerking and opening up plants in other countries, I said, ‘well, there are a few elements that we need to know before we make a sound decision,’” Martel explained. “The first one is, what’s going to be the impact of the tax rates in the various countries? What will be the content requirements in terms of country of origin, based on NAFTA 2.0? Are you going to go from 60% of normal North American content to 80%, or from 60% to 75%? That has a big impact and that could influence your manufacturing strategy. And the third one was, what’s going to be the penalty if you don’t comply? If the penalty is 20%, that’s one of the elements you need to consider.”
Ultimately, the USMCA’s impact in the powersports industry was “very minimal,” as ATVs were the only product that fell under the auto industry classification, Martel added.
President Donald Trump officially signed the USMCA last month, although the document won’t be finalized until it is ratified by Canada; should Canada endorse it, the agreement will go into effect 90 days later.
To hear more from BRP on its goals and outlook for 2020, listen to the latest episode of Plug-In with Powersports Finance.