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Trump tweets, carmakers jump

January 13, 2017
Donald Trump has made it clear: He doesn’t like automakers building cars in Mexico and exporting them to the U.S. 
With President-elect Trump elected on promises to renegotiate trade deals and bring back U.S. manufacturing jobs, automakers are aggressively spotlighting U.S. investments while waiting for a coherent trade policy from the new administration.
As the world’s largest carmakers gathered for the Detroit Auto Show, they gave the impression that they’re making big changes and putting U.S. production at the forefront amid harsh Twitter criticism from Trump over auto production in Mexico.
Despite its recent announcement, Toyota said it would not pull back on plans to build an assembly plant in Mexico in 2019.
The now-abandoned Ford plant is the only Mexican assembly plant publicly announced by a U.S. automaker. Not that Ford’s decision to cease construction at the plant in San Luis Potosi, north of Mexico City, was pure PR.
The San Luis Potosi factory — with construction about 10 percent complete, according to Ford — was intended to turn out the subcompact Ford Focus. Shutting it down will have a real (though unrevealed) cost for Ford, while disappointing Mexican workers who were counting on good jobs.
Ford said production would be shifted to an existing Michigan assembly plant, and that it would spend $700 million on U.S. production of an all-electric version of the car.
Ford Chief Executive Mark Fields had tangled with Trump during the election, protesting that no jobs in Michigan would be lost as the local Focus plant shifted to building new pickups and SUVs.
But Trump didn’t let up, and Fields early this month gave up on the Mexico plant. He told reporters the decision had nothing to do with the president-elect. In fact, the market for cars such as the Focus is shrinking as U.S. buyers increasingly favor trucks and SUVs.
Although Fields denied that Trump played into Ford’s retreat from the Mexico plant, and Fiat Chrysler’s chief executive, Sergio Marchionne, also said its decision was "coincidental" to Trump’s public criticism, industry analysts say automakers are under pressure.
"The auto manufacturers have to consider the incoming administration as they make announcements regarding the production of vehicles," said Efraim Levy, financial analyst at CFRA. "Despite Mr. Field’s protestations, I think the final nail in this decision was the president-elect."
Trump’s ire was not restricted to Ford. He fired some Twitter shots at General Motors and Toyota as well. On Jan. 3, the president-elect tweeted: "General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A. or pay big border tax!"
On Jan. 8 in Detroit, GM Chief Executive Mary Barra told reporters it would be highly disruptive and expensive to kill an existing car plant.
"This is a long-lead business with highly capital-intensive investments — two, three and four years ago," Barra said, according to MarketWatch.
Ron Harbour, auto manufacturing consultant with Oliver Wyman, agreed: "You can’t just tomorrow change the footprint that’s there."
 
On Toyota, Trump tweeted: "Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax."
 
Trump had his facts wrong. Toyota has been building vehicles in Baja for 14 years. He apparently was referring to the new plant Toyota has planned in central Mexico for 2019.
 
Based on campaign rhetoric, the tariff threat is real. Trump said he wants to renegotiate the North American Free Trade Agreement, which took effect in 1994. Whether he’d use tariffs as a negotiating ploy or impose them separately is unknown.
 
BMW and Nissan are also planning new assembly plants in Mexico: Nissan this year, BMW in 2019. Although the foreign automakers don’t face pressure to create U.S. jobs, they could be hurt by tariffs.
Beyond the Twitter potshots, automakers and analysts are anxiously awaiting some clarity. Many are worried about the costs of pulling out of or reducing production in Mexico.
 
Harbour said the main reason automakers are in Mexico is to build small vehicles that meet clean air and fuel economy requirements without losing money on each car.
 
"If I had 10 minutes with the president-elect, I’d show him one slide," he said. "I’d show him what the cost curve looks like."
 
 

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