MADE IN AMERICA CONTEST
After jabs from President-elect Trump, automakers from around the world tout their manufacturing ties in U.S.
The glitzy annual auto show here typically is a beauty contest for new cars, but this year it has become a forum for a bragging contest among CEOs who want to declare their companies are the most made-in-the-USA auto manufacturer.
Automakers are practically tripping over themselves to show off their American factories following tweeted jabs by Presidentelect Donald Trump at companies that assemble vehicles in Mexico to sell in the U.S. There’s a lot at stake. As Trump threatens a 35% tax on imported vehicles, which would require extracting the U.S. from the North American Free Trade Agreement, industry executives are fretting that their major investments in Mexico suddenly could be in jeopardy.
In some cases, automakers proactively trumpeted their U.S. investments at press conferences and in interviews at the Detroit auto show. In all cases, they’re well prepared to share statistics about their commitment to America, in addition to the claims:
General Motors. “We have the highest domestic content” of any automaker and have made $11 billion in U.S. investments over the last two years, CEO Mary Barra told reporters.
Ford Motor. “We are the largest employer of hourly automotive workers in the U.S.,” CEO Mark Fields said in an interview. Last week, Fields announced the company canceled plans to build a $1.6 billion plant in Mexico.
Fiat Chrysler. The third of Detroit’s Big 3 automakers earned a laudatory tweet from Trump after announcing expansion of a pair of plants and plans to hire 2,000 workers.
Toyota. Japan’s largest automaker has made “more than 25 million vehicles in the U.S. over the past 30 years, which honestly never ceases to amaze me,” CEO Akio Toyoda said at a press conference. Toyota said it would invest $10 billion over the next five years in U.S. operations.
Volkswagen. The German automaking giant noted its recent $1 billion investment in its Chattanooga, Tenn., plant to manufacture the new VW Atlas sport-utility vehicle.
“We are a very strong, invested, good corporate citizen in the United States,” VW North America CEO Hinrich Woebcken told reporters.
Honda. President Takahiro Hachigo opened the Japanese automaker’s press conference by noting that 2017 is the 40th anniversary of Honda’s announcement of its first American plant. The automaker now has 12 factories in the U.S.
“We made this decision based on our commitment to make our products close to our customers,” Hachigo said.
Jeffrey Conrad, senior vice president and general manager, downplayed the political dynamics of those investment decisions but acknowledged that the impact of the Trump administration on the auto industry is the No. 1 issue discussed at the show.
“The reality is, we have a president that hasn’t gone through an inauguration yet. Everything truly is speculation,” Conrad said. “We are going to look, wait and see, and we will react accordingly.”
Many of the automaker’s pronouncements cover investment announcements that already were in the works.
They raise questions about whether executives are playing a publicity game in hopes of halting momentum for import taxes, which could have a devastating effect.
“The repercussions would be tremendous,” said Tom Webb, chief economist for Cox Automotive, which offers services to dealers and consumers. “You’re talking about a tremendous falloff in terms of their basic corporate structure.”
Barring any significant policy changes, the Center for Automotive Research projects that U.S. share of North American automotive production will fall to 58% by 2020, down from the previous low of 63% last year. That’s in part because Mexican automotive labor costs remain 80% lower than American labor, although higher expenses for security and transportation erode the savings gap. Most automakers have moved production of small cars to Mexico because they can’t make them profitably in the U.S.
A 35% tariff would eliminate the savings of manufacturing in Mexico, Ford Chief Financial Officer Bob Shanks said. “It’s not even close,” he said. What’s unclear is how the auto industry would handle the extra costs of a tariff.
The average Kentucky-assembled Toyota Camry would cost an extra $1,000 to manufacture because about 25% of its components are imported, Toyota North America CEO Jim Lentz said in an interview.
“I understand what the president-elect is saying — he’s basically saying that we want to have a vibrant economy, that we want to be more competitive in the world,” Lentz said. “There will be some winners and there will be some losers, and the automotive sector would be a loser.”
Some believe cars would get more expensive as automakers compensate. But Barclays analyst Brian Johnson said in a research note that there’s “likely little ability” for manufacturers to pass costs along to consumers in the form of higher prices because shoppers “are fairly price sensitive.”
Ford and GM are particularly well positioned to weather a trade storm in North America because of their substantial U.S. operations. But Toyota, Nissan and Hyundai each import about half of their U.S.-sold vehicles, while Mercedes-Benz and BMW “import the most into the U.S.” despite exports from their American factories to foreign markets, Johnson noted.
Toyota said it would invest $10 billion over the next five years in U.S. operations.
Ford CEO Mark Fields said the automaker won’t build a $1.6 billion plant in Mexico.