Wednesday, 16 November 2016 23:22

Trump Presidency Drives Uncertainty Into Auto Industry

Written by Michael Wayland, Melissa Burden and Keith Laing, The Detroit News

TRUMP

 

Donald Trump’s election to the presidency is expected to have a profound impact on the U.S. automotive industry, from potentially killing trade deals to shaking confidence of car buyers.

Experts say it’s too soon to understand the far-reaching effect of the billionaire businessman becoming commander-in-chief, but some are concerned that his brash campaign promises of building walls, axing trade deals and imposing high tariffs on automobiles imported to the U.S. could cause short-term sales declines and long-term implications on the global industry.

 

“We just don’t know how consumers — particularly Clinton supporters — are going to react,” said Charles Chesbrough, senior economist and executive director of strategy and research at the Original Equipment Suppliers Association. “I can’t imagine anybody going out and buying a car over this weekend.”

 

On November 9, automakers vowed to work with Trump on policies, manufacturing and jobs. Investors were cautious about a Trump presidency early that Wednesday, but losses subsided later in the day. Fiat Chrysler Automobiles NV and General Motors Co. shares both closed down 2.4 percent, while Ford Motor Co. closed up nearly 1 percent.

 

Some analysts expect Trump to ease his stance on trade after taking office.

 

“Even with some potential tariff costs to automakers, we believe GM and Ford will have time to flex production and regional sales to mitigate the impact,” Efraim Levy, an analyst with CFRA Research, said in a note to investors Wednesday.

 

New tariffs proposed by Trump while campaigning could add $5,000 to a $15,000 car, Chesbrough said. And it could come as new car sales are showing signs of slowing in the U.S. from their record clip. Automakers also face concerns that sales in China also may slow.

 

“All bets are off in this election,” Chesbrough said. Uncertainty in the marketplace may cause consumers and automakers alike to take a wait-and-see approach to making any serious investments or purchases until Trump finalizes his priorities and cabinet."

 

Washington-based Democratic strategist Jamal Simmons, a Detroit native, said it will not be as easy for Trump to undo trade pacts like the North American Free Trade Agreement, which Trump repeatedly blamed for manufacturing job losses during the contentious 2016 campaign.

 

“The president-elect has to balance a lot of competing interests,” he said. “The decisions he will make will not be based on what he wants or what his supporters do, but based on what the government can do or what our allies need. Right now, a lot of our allies need reassurance.”

 

If renegotiating NAFTA is not a success, Trump has indicated he would end the trade pact with Canada and Mexico and slap a 10 percent to 35 percent tariff on vehicles and parts made in Mexico that are imported into the U.S. He also has threatened tariffs of up to 45 percent exported from China to the U.S.

 

Trump could give six months notice to Canada and Mexico that he wants out of NAFTA. However, it would appear he would want congressional approval if he wanted to change trade taxes or tariffs involving Canadian or Mexican products.

Mexico investments

 

Carmakers have banked on using low-cost Mexican labor for small-car production, which has lower profit margins. Automakers, including the Detroit Three, have announced more than $24 billion in Mexican investments since 2010, according to the Center for Automotive Research.

 

Trump repeatedly used announcements by Ford to invest billions in Mexico and move production of the Ford Focus and C-MAX from its Michigan Assembly Plant in Wayne to Mexico as a talking point in his campaign.

 

The Dearborn-based automaker, including its President and CEO Mark Fields, several times during the election attempted to defend Ford’s Mexico investment and correct statements Trump made about the automaker shuttering plants domestically to move production south of the border.

 

“It’s really unfortunate when politics get in the way of the facts,” Fields said Sept. 14, a day after Trump mentioned the company’s plans to move all small-car production to Mexico during a debate. “Ford’s investment in the U.S. and commitment to American jobs has never been stronger.”

 

Ford isn’t alone in its decision to invest in Mexico. However, Trump has been mostly silent on GM and Fiat Chrysler, which also are investing billions in Mexico.

 

GM said in late 2014 it plans to invest $5 billion in Mexico over six years, but has not revealed what vehicles and engines it will build there. Analysts believe GM plans to shift some next-generation small crossover production from Canada to Mexico.

 

Fiat Chrysler is moving production of its all-new Jeep Compass compact SUV from a plant in Illinois to Mexico. The company has said no job loss will occur under a plan to shift production of its U.S. plants to produce pickups and SUVs.

 

The Detroit automakers as well as trade groups representing the world’s largest foreign automakers vowed Wednesday to work with Trump on policies to help strengthen the automotive industry.

 

“We support President-elect Trump’s pledge to focus on economic growth,” said Gloria Bergquist, vice president of communications and public affairs for the Alliance of Automobile Manufacturers, an advocacy group representing 12 of the world’s largest car manufacturers. “We look forward to engaging in a productive discussion with President-elect Trump’s administration and the Congress on pro-growth policies, including regulatory and fuel economy issues.”

 

Trade ramifications

 

Kristin Dziczek, director of the Industry & Labor Group at CAR, said even if Trump delivers on some of his campaign promises, the automakers aren’t just simply going to shutter operations in Mexico and move them to the United States.

 

“You can put up trade barriers, you can dismantle NAFTA, and it’s like whack-a-mole because these are global industries, global supply chains and global companies,” she said. “And you know, they’ll find another place for that part or supply or vehicle to come from. It’s not just Mexico.”

 

Carla A. Hills, chairwoman and CEO of Hills & Co. International Consultants in Washington, D.C., which advises companies on trade issues, said tariffs on products from Mexico would be particularly tough on U.S. automakers.

 

Hills, who was a U.S. trade representative under the first Bush administration, said the U.S. sells more goods to Mexico than many other countries combined. She believes many companies will turn to the Congress and others for assistance in persuading Trump not to do “something foolish that really hurts our industry.”

 

“To try to destroy that market that we’ve worked so hard to open up would be a disaster,” she added.

 

Washington-based Republican strategist John Feehery said Trump is likely to face more pushback from the business sector on NAFTA now that he’s actually president-elect.

 

He doesn’t believe Trump will be able to fulfill his campaign pledge to repeal the trade agreement: “I don’t think it is that likely, given how important NAFTA is to so many companies in this country.”

 

We would like to thank The Detroit News for reprint permission.

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