The move yielded great results. Buyers didn’t flinch when the factory, located in Monterrey, produced more than 22,000 vehicles in its first year, increasing the company’s sales by 33% while saving millions of dollars in costs. The factory has since become Polaris’ largest, producing models like the RZR, a dune buggy-style vehicle that starts at $16,000 and can go to more than $40,000.
Now the factory could become a risk. President-elect Donald Trump has pledged to impose a 25% tariff on all goods coming from Mexico, in retaliation for what he described as the country’s lax efforts to stop drug smuggling and illegal immigration.
For Polaris, which has added engine assembly and injection molding facilities to its operations in Monterrey, the new duties could create $400 million in costs that would be passed on to consumers, said David MacGregor of Longbow Research.
The higher prices would come as Polaris faces weaker demand for its products, as well as $70 million to $80 million in tariffs on Chinese components used in its U.S.-made vehicles. The company has argued that these tariffs, imposed during Trump’s first administration, are an unfair burden because its main competitors do not produce in the US.
Chief Executive Michael Speetzen said at an investor conference Wednesday that Polaris is reviewing its purchasing but is otherwise waiting to see what happens.
“We’re not going to spend a lot of energy trying to worry about what might happen,” he said. “I mean, there are a million different scenarios.”
Tariffs would upend a trading relationship that has allowed most goods produced in Mexico to enter the U.S. duty-free since 1994. Companies that make everything from cars to medical equipment have benefited from the country’s proximity to the U.S. and abundant, cheaper labor. Last year, Mexico exported $475 billion worth of goods to the US, overtaking China as the largest foreign supplier.
Companies including Minnesota-based Polaris are now considering an abrupt adjustment to their long-standing economic calculus. The Motorcycle Industry Council, which lobbies for power sports manufacturers, said high tariffs would harm the industry and its customers.
“We hope that any new tariffs will also provide an opportunity to make our case for exclusions,” said Scott Schloegel, a senior vice president at the trade group.
On the way south
Polaris’ founders built their first vehicle, a snowmobile, in the 1950s, and for many years the company’s only factory was in Roseau, Minnesota, a rural town about 10 miles south of the Canadian border. It later added factories in Iowa and Wisconsin. More than a decade after the North American Free Trade Agreement sent U.S. manufacturers en masse to Mexico, the company has stood firm, insisting that its Midwestern workforce was suitably cost-effective.
That sentiment changed in 2010. Scott Wine, CEO at the time, announced plans to build a factory in Mexico, saying Polaris would save more than $30 million a year in production costs and produce off-road vehicles closer to its customer base. in the southern US
Another advantage: Although Polaris had trouble attracting workers to the small towns where its U.S. factories were located, that wasn’t a problem in the industrial center of Monterrey. The metropolitan area’s population of 5.3 million is almost as large as the entire state of Minnesota.
“It is just a few hours out of the border, and we will get significant savings and greater efficiency and faster speed in our value chain once this is fully operational,” Wine said at an investment conference.
Polaris built its factory on the eastern edge of the metro area, not far from the airport. The process did not go smoothly. The company had to build a supply chain from scratch. There was also occasional violence in the city, and at one point a model vehicle shipped from Minnesota was stolen en route, according to people familiar with the matter. But within a year, production had begun.
Polaris has since expanded its product lines and global ambitions, adding factories in China, Poland and France, along with Alabama and Indiana. The U.S. still employs more people than Mexico, but the company’s facilities in Monterrey have become by far its largest, at 2.7 million square feet.
“What are you going to do?”
After the factory opened, Polaris said customers didn’t back down. The company stopped placing American flag stickers on vehicles, a subtle sign of the shift.
Eugene Bass, a 54-year-old general contractor from Delta Junction, Alaska, owns a RZR and documents some of his rides on a YouTube channel. He said he would prefer if the vehicle were made in the U.S., but he isn’t deterred by its Mexican origins. Off-road driving is so exciting, he said, that many drivers are unlikely to be deterred by a fare-related price increase.
“I think you’re going to see a lot of people whining and whining, but you know what, they’re going to buy them anyway,” said Bass, who paid more than $30,000 for his 2022 model. “It’s just like the price of everything else that goes up. What are you going to do?”
The US and Mexico imposed tariffs on each other during Trump’s first term before arriving at a successor to Nafta, known as the US-Mexico-Canada Agreement. This allowed most products, including Polaris, to remain tax-free. But the president-elect is promising a more aggressive stance this time, threatening agricultural equipment maker Deere with a 200% tariff if he moves production to Mexico.
Mexican President Claudia Sheinbaum promised retaliatory tariffs if Trump goes ahead with his plan.
Some supply chain specialists doubt that the Trump administration’s tariffs will reverse the industry’s long-standing investments in Mexico, adding that even the conflicts during Trump’s first term have not derailed the sector’s growth.
“It’s too big to stop,” said Eric Porras, professor at Tecnológico de Monterrey’s Egade Business School. “Two or three years of this pressure from the US may not equal the more than twenty years we have exchanged goods.”
Write to John Keilman at [email protected]