Polaris is an American manufacturer of motorcycles, snowmobiles,…

BrigadierTitanium11043 Polaris is an American manufacturer of motorcycles, snowmobiles,…Polaris is an American manufacturer of motorcycles, snowmobiles, ATVs, and neighborhood electric vehicles. Polaris was founded in Minnesota in 1954, where it still engages in much of its manufacturing and engineering today (see Figures 7.16 and 7.17). However, in 2010, Polaris relocated the assembly of its utility and sport vehicles to Monterrey, Mexico. The move has been estimated to have saved Polaris $30 million annually because the labor in Mexico is much cheaper than in the United States. The average hourly wage rate in Mexico is under $6 per hour, while in Minnesota it is over $15 an hour. This $9 an hour of cost savings has allowed Polaris to maintain competitive pricing on its vehicles. As stated by the CEO, Scott Wine, “We have concluded that in order to remain competitive and position Polaris for growth in the global market, we must align our manufacturing operations closer to our evolving customer base and seek to lower our overall manufacturing and logistics costs.” Monterrey has been a good market for Polaris, as many other multinational companies have also set up manufacturing plants in the city. Creating a hub for manufacturing means that Monterrey is seen as an attractive market for semi-skilled workers, with a workforce population of 2.3 million and great educational opportunities with top universities like Tec de Monterrey. Taking advantage of this attractive manufacturing environment are companies like Kia, Mercedes Benz, Caterpillar, John Deere, Phillips, Takata, Siemens, Whirlpool, and Panasonic. Moreover, Monterrey is geographically close to the United States and many other parts suppliers are located in the area. The New Trade Agreement Between the United States, Mexico, and Canada On November 30, 2018, the United States President, Donald Trump, Mexican President, Enrique Nieto, and Canadian Prime Minister, Justin Trudeau, signed the new USMCA trade agreement that replaces the old NAFTA agreement between these three countries. While we have to wait for a few years for this new agreement to be accepted by each country’s respective legislatures, companies like Polaris have already begun to try to figure out what this means for its operations in Canada and Mexico. While the new USMCA trade deal is not supposed to be too different when compared to NAFTA, it has some changes that have made some U.S. manufacturers concerned about whether it will still make sense to continue manufacturing in Mexico. To help determine if the USMCA trade agreement would help or hurt Polaris in Mexico, the company hired an outside consulting group to go through the new agreement and show how the USMCA differed from NAFTA. FIGURE 7.16 Polaris makes some of the first snowmobiles These early snowmobiles were used to help researchers in Antarctica PAGE 132 IN TEXTBOOK Comparing USMCA and NAFTA as it Relates to Polaris In its review of USMCA, the consulting group concluded that Polaris will be able to sell their ATVs that are manufatured in Mexico back in the United States and Canada duty-free (sold with no tariffs) if the vehicle qualifies as being an “originating good.” Goods qualify as originating if: The product is wholly obtained or produced entirely in the territory of one or more of the Parties The product is produced entirely in the territory of one or more of the Parties using non-originating materials The product is produced entirely in the territory of one or more of the Parties exclusively from originating materials The regional value content (RVC) of the good is not less than 60 percent if the transaction value method is used, or not less than 50 percent if the net cost method is used To provide specifics on how the vehicle can achieve the regional value content threshold of 60 percent, the consulting team pointed out the following: Regional Wage Index: The new trade agreement has introduced a regional wage index, which requires that, in terms of value, 40 percent of light vehicles (e.g., ATVs and snowmobiles) must correspond to manufacturing costs in regions with an average salary greater than US$16 per hour. This increase will be gradually introduced during a 3-year period. Regional Value Content: All automotive OEMs must carry out purchases of steel and aluminum for the production of vehicles from the USMCA region in a level of at least 70 percent. Autoparts: For certain parts of the vehicle, different percentages must come from the region of origination. For instance, if selling to the United States, this percentage of these parts must come from the United States. For core parts of the vehicle, like the engine and transmission, 75 percent of the parts assembled in Mexico must be from the United States. Where complementary parts must only have 65 percent coming from the United States. Labor Unions in Mexico: Mexico will provide in its labor laws the right of workers to organize, form, and join the union of their choice. Employers are not permitted to interfere in union activities, discrimination, or coercion against workers for union activity or support. Collective bargaining agreements shall include a requirement for majority support, through the exercise of “personal, free, and secret” vote of the workers covered by those collective bargaining agreements. And all Mexican collective agreements shall be renegotiated within 4 years to address salary and working conditions and must receive majority support. FIGURE 7.17 Polaris and the U.S. Forest Service Not only are off-road vehicles great for recreation, but they are used by the U.S. Forest Service to fight fires and perform rescues. PAGE 132 IN TEXTBOOK Polaris Going Forward Making sure Polaris vehicles achieve originating goods status is important for the company going forward. At present, 45 percent of all Polaris vehicles are manufactured in Monterrey, where they make over 600 vehicles a day. Right now, 65 percent of the parts for the vehicle come from the United States, Mexico, or Canada, while 30 percent come from Asia and 5 percent from Europe. To help ensure Polaris is meeting its originating goods status for vehicles manufactured in Mexico, what would you recommend that Polaris do? Case Discussion Questions  4. How would you ensure 75 percent of content comes from the USMCA region? BusinessBusiness – Other