Over the course of his candidacy, President-elect Donald Trump has scorned automakers—particularly Ford— who “send jobs elsewhere” by building plants outside of the U.S. Now that Trump will be the next president, the industry is concerned about its copious investments outside of the U.S.
Upon Trump’s election, shares for some automakers and suppliers like Fiat Chrysler, GM and Delphi—all of which have big operations in Mexico—dropped, as investors began to fear ramifications of Trump’s proposed policies that will supposedly emphasize manufacturing in the U.S. instead.
In particular, much of the concern revolves around Trump’s proposed tariff for trade between the U.S. and Mexico, a tariff which a senior economist at the Original Equipment Suppliers Association trade group said “add $5,000 to a $15,000 car,” according to The Detroit News.
So that little Cuautitlán-built Fiesta in the picture above, for example could become a $20,000 car.
Trump told the newspaper during his visit to Flint in September the rationale behind his proposed policies, saying he was unhappy with Ford, who had just announced it would shift all small-car production to Mexico. The President-elect said:
We shouldn’t allow it to happen…They’ll make their cars, they’ll employ thousands and thousands of people not from this country and they’ll sell the cars right through our border. No tax, no nothing and we’ll have nothing but more unemployment in Flint and in Michigan. It’s horrible.
But it’s not just Ford. The Center for Automotive Research says the Big Three have all invested over $25 billion in operations Mexico.
The question is: are we really going to be dropping 20 large on small cars after Trump becomes president? The paper says not necessarily, speaking with analysts who think Trump will “ease his stance on trade after taking office.”
Even if he doesn’t ease up, though, the site quotes auto analyst Efraim Levy from CFRA Research, who told investors:
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
On top of that, some strategists told the news site Trump’s plan to repeal NAFTA is going to be very difficult, and may not even be possible within his term considering how important it is for American companies, as the U.S. sells more goods to Mexico than many other countries combined according to the site.
Trump also mentioned a 45 percent tariff for cars exported from China to the U.S., a move that could not only hurt companies now building vehicles there, but could also hurt American automakers’ penetration into the Chinese emerging automotive marketplace.
So will the new administration impose a tariff? Will it be as high as Trump has proposed? Will automakers be able to “flex production” to soften the blow? How would proposed tariffs with China affect U.S automakers’ inroads in that marketplace?
Nobody knows the answers yet, and The Detroit News says that may lead automakers to follow a “wait-and-see approach” before making any further major investments.
But even if I can’t answer many of these questions, I can say the next four years are going to mean a serious reevaluation of strategy—and the status quo—among automakers.