Linamar expects trade deal to boost orders

MONTREAL • Linamar Corp. is in discussions with automakers in an effort to win new business under the new U.s.-mexico-canada trade agreement.

Increased North American content rules will give suppliers such as Guelph, Ont.-based Linamar the opportunity to gain more work from the automakers closer to home, chief executive Linda Hasenfratz said. Linamar operates plants in 11 countries, including all three USMCA member nations, and counts Ford and General Motors among its customers.

The new trade deal “is a very interesting opportunity for us,” Hasenfratz said in a telephone interview from Linamar headquarters.

“How big? It’s difficult to quantify, but it’s definitely something we are actively pursuing. None of the manufacturers have so far talked about how far off from 75 per cent they are.”

Under the USMCA, a car will need to have 75 per cent of its parts come from North America to receive duty-free designation, up from 62.5 per cent. The deal also requires that at least 40 per cent of a car be made by workers whose pay averages more than US$16 an hour — which could shift production from Mexico’s cheaper labour market to the U.S. or Canada.

Opportunities for Linamar include transmission and engine work currently performed by the carmakers themselves, according to the CEO.

“A lot of the transmission and engine content in Mexico is done in-house by our customers,” Hasenfratz said. “An easy way for the carmakers to increase the highvalue content is to take some of the work they do in their facilities and have us do it in Canada or the U.S.”

Linamar is Canada’s second-largest car-parts producer after Magna International Inc. Its four largest customers — Ford, GM, Volkswagen and Fiat Chrysler — accounted for about half of the company’s $6.5 billion in revenue last year. The company’s shares have dropped about 2.4 per cent since the trade deal was announced on Sept. 30.

Any new business that results from the USMCA may not materialize before about two years, Hasenfratz said.

“For many types of auto components there is a lengthy lead time in terms of how long it takes to secure the equipment, tool up a job and validate it — in some cases, 12 to 18 months,” she said. “It will take time for this to play out.”

In the meantime, Linamar plans to keep investing both at home and abroad following the announcement of a $750-million expansion in Ontario in January.

“For 2019, we see continued investments for the new business that’s launching here, as well as globally,” Hasenfratz said. “We’re thrilled that we came to an agreement with our most important trading partner and that we no longer have this issue looming over us.”