How Trump could change U.S. auto manufacturing
Major auto companies have been crowding forward this week to announce new investments that will create or keep jobs in the U.S. Does this signal a change in direction in response to the tweeted combination of threats and encouragement from Donald Trump?
Some industry analysts have a clear answer. “As with Ford, Fiat Chrysler and Toyota before, General Motors’ announcement of a $1 billion investment is mostly theater to play in the news cycle created by President-elect Trump’s tweets,” said Michelle Krebs, senior analyst for Autotrader. “These investments and hiring plans have long been in the works.”
But many Trump campaign promises -- if actually put into law -- could change the face of auto manufacturing in North America. Principally, these involve either a repeal of NAFTA or an imposition of high tariffs on cars manufactured in Mexico and sold here.
Sergio Marchionne, CEO of Fiat Chrysler (FCAU), told reporters at the recent Detroit Auto Show his company had suspended any possibility of additional investments in Mexico until U.S. policy emerges more definitively. “We need a clear indication of how the U.S. administration plans to deal with NAFTA,” Marchionne said. “We’re just waiting for clarity.”
Carlos Ghosn, CEO of the Renault-Nissan Automotive Alliance (NSANY), in a CBS New interview in Davos, Switzerland, said he expected “an evolution of the NAFTA agreement, and carmakers are preparing to make sure they can adapt.”
NAFTA has made it possible for both American and foreign auto companies to build cars in Mexico, where wages are lower, and then bring them into the U.S. for sale without tariffs or other trade restrictions. In a tweeted offensive against Toyota’s (TM) plans to open a Mexican plant to build Corollas, Trump threatened “a big border tax” of 35 percent on those cars if Toyota sells them in the U.S.
Either a NAFTA repeal or a tariff would put into question the future of Mexican plants, Marchionne said at the Detroit show. Many factories south of the border build small, lower-price cars like the Corolla and the Chevrolet Cruze principally for sale in the U.S. but also for other markets. But hot-selling pickups and SUVs are mainly built in the U.S. because their higher prices and higher profits can offset the higher wages paid to American workers.
Here’s a closer look at possible effects of these or other protectionist measures aimed at the auto industry:
- As a car buyer, you might have to pay more for such small cars as the Chevy Cruze, which starts just below $17,000 or Toyota Corolla, beginning at $18,500.
- Protectionist policies could affect cars made in Europe or Asia and sold here, though Trump hasn’t said much about this angle
- Tariffs or other trade restraints could scuttle Chinese plans to compete in the U.S. auto market. At the Detroit show, Chinese firm Guangzhou Automotive Group displayed an SUV that it hopes to sell in the U.S. as early as 2019.
Not only auto companies but American citizens and world leaders are waiting to see when and how campaign tweets can become legislation or executive orders. The outcome will affect world trade and American life well beyond the auto industry.