'Months' Needed to Move Production, Says Universal CEO, Amid Shift to Mexico From China
Universal Electronics (UEI) CEO Paul Arling was “a little surprised -- unpleasantly surprised” -- to learn of President Donald Trump's threat to impose tariffs on Mexican imports (see 1905310014) just as the company is shifting "a good percentage” of production from China to Monterrey, Mexico, to escape the Section 301 tariffs on Chinese goods, he told an investor conference Tuesday.
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UEI historically has produced goods such as remote controls in China, but began moving “nearly half of our units” out of China last year, he said. "We do not wish to absorb a 25 percent increase, nor do our customers,” said Arling of the List 3 tariffs.
Should Trump make good his threat to impose 5 percent tariffs Monday on Mexican goods and raise them incrementally to 25 percent by Oct. 1, “we’re going to play that by ear,” said Arling. He referenced UEI's past efforts to source goods from locations “other than China,” listing as possible options the Philippines, where it has some operations, and Vietnam.
Trump expects the 5 percent duties to take effect Monday as he announced they would, and Republicans in the House and Senate would be "foolish" to try and stop them, he told a London news conference Tuesday. Mexican Foreign Minister Marcelo Ebrard and Secretary of State Mike Pompeo will meet Wednesday to discuss what Mexico is doing to heed Trump's warning to stop the influx of migrants to the U.S. along the southern border.
UEI “could” ship from the Philippines if it needed to, but “it does take a little bit of time" to ramp production for the extra volume, "particularly if it’s a lot of volume,” said Arling. It would take “months” to set up shipments of a million units monthly through subcontractors, such as the vendor it uses in the Philippines, he said. Shipments of 2-3 million units “would take more months,” he said. UEI needed six months to shift production to Monterrey from China, he said.
The company doesn't have a plan yet to invest in manufacturing facilities, Arling said. He minimized the financial implications of moving production from one country to another, and said there remain “untariffed countries” UEI could move to where it could produce “cost effectively.” Such a move would cause “a lot of commotion and work,” especially for the UEI's operating group and program managers, but “economically, long term, there’s really no effect,” he said. Once production is running, “the margin effect would be nil,” he said.
Arling downplayed the likelihood the administration would ever impose tariffs on most goods produced outside the U.S. "I don’t think that’s going to happen," he said. Speaking hypothetically, if all goods produced outside the U.S. were to be tariffed at 50 percent, “we could set up" production in Indiana, Nebraska or even New York, he said, noting: “Obviously, the cost of the products would go up significantly.”
UEI studied opening a U.S. factory “a few years back,” but decided “you’d be so cost- uncompetitive that you wouldn’t be able to compete," said Arling. "You wouldn’t even be close on price.” If UEI were forced somehow to open a U.S. plant, “we could set one up and the price of the product would go up, but so would everyone’s, so we’d be fine and we’d compete at a much higher price.” The company’s long-term hope is for tariffs to go to "zero,” Arling said.