Auto industry’s Trump fear
"I like the car I'm in now. It's a Chevrolet Suburban. Made in the USA," Donald Trump told the Detroit News last year when the then presidential hopeful was asked to name his favourite car from his 100-plus vehicle fleet that includes a scissor-door Lamborghini Diablo and a 1956 Rolls-Royce Silver Cloud.
For General Motors, Chevy's owner, it was nice PR, the latest in a series of endorsements from the Trumps that reach back like a stretch limo to the Cadillac Trump's landlord father Fred used to pick up his rent checks. In the 1980s Donald Trump even worked on building a Trump-branded Cadillac, complete with VCR and paper shredder. The Trumps may be fans of the US's largest car manufacturer but GM, and the car industry in general, should have been paying more attention to the final sentence of his pre-election endorsement: "Made in the USA."
Trump hit out at the car industry last week like a drive-by shooter, firing off a series of angry tweets about their outsourcing of US jobs. Those tweets will be the hottest topic this week as Detroit's annual car jamboree, the North American International Auto Show, gets started. It's a chance for the industry to show off all its latest products and for its executives to address the media about the future. Trump's blimp-like shadow is overhanging the event as executives and analysts fret about how this overtly interventionist president will use the bully pulpit of his office, and his Twitter account, to try and force a radical change in the way they do business.
"Pretty much everybody is dreading being the subject of a tweet. Getting hauled out into the court of public opinion with virtually no warning is not something anybody wants to get engaged with," said Kristin Dziczek, director of the industry, labour and economics group at the Michigan-based Center for Automotive Research (CAR).
The auto industry matters to the US and to Trump. Six years after a recession that almost destroyed it, the US car industry has made a miraculous recovery. Last week it reported record sales for 2016. Auto manufacturers, suppliers and dealers employ over 1.5 million people and directly contribute to the creation of another 5.7m jobs, according to the CAR.
Trump won thanks in large part to States where the auto industry is strongest. The Republican candidate took Michigan, home to the auto show and still the industry's hub, from the Democrats for the first time since 1988 with a campaign that tore into companies that have sent those voters' jobs abroad, especially to Mexico. Ford bore the brunt of Trump's attacks during the election. Last week it was GM's turn. Then Toyota's.
"General Motors is sending Mexican-made model of Chevy Cruze to US car dealers-tax free across border. Make in USA or pay big border tax!" the president elect warned via his favorite megaphone, Twitter.
Two days later, he was after Toyota. "Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for US. NO WAY! Build plant in US or pay big border tax," he tweeted. Toyota's plans were old news but the tweet came on the same day that its president, Akio Toyoda, had told reporters he was keen to work with the president-elect.
These were the latest in a series of attacks on major US employers, including Carrier, Boeing and Lockheed Martin, that have so far brought CEOs running, cap in hand, to Trump Tower to make up for their alleged corporate misdeeds. Shortly after the GM tweet, Ford announced it had canned plans to open a $1.6bn plant in Mexico and would add new jobs building electric and hybrid vehicles at a plant in Flat Rock, Michigan. Trump hailed the move: "Thank you to Ford for scrapping a new plant in Mexico and creating 700 new jobs in the US. This is just the beginning – much more to follow," he tweeted.
Matt DeLorenzo, managing editor for Kelley Blue Book, said Trump was "playing to his base and a lot of the voters who put him in office were industrial midwest, blue collar, union workers. All his tweets and pronouncements have been geared to addressing that audience,"
Ford had already warned that the car industry was expecting a slowdown in sales, especially of smaller vehicles like the ones that would have been built in Mexico. So scrapping the plan makes economic as well as political sense for the company, but market watchers doubt the industry and Trump's agendas will remain compatible.
GM is expected to start laying off more than 3,000 factory workers in Michigan and Ohio, another state that voted for Trump, starting later this month. Will they defend that decision if Trump goes on the attack?
The car industry is truly international and China is its largest market. GM and its joint venture partners sold 3.87m vehicles in China in 2016, up 7.1% from the previous year. China accounts for a third of GM's sales. Like its corporate peers, GM has – so far – remained silent over Trump's anti-China rhetoric, but a trade war would be a disaster for the company.
Some wonder if Trump will really translate tough talk into policy. "There is always a difference between campaigning and governing and we have not yet seen what governing looks like," said Dziczek. Others are more concerned. Trump is in a honeymoon period because "there is nobody speaking out", said Daniel Ikenson, director of the Herbert A Stiefel Center for Trade Policy Studies at the Cato Institute. Republicans have remained silent as he has attacked businesses they once defended and the business community has even gone out of its way to endorse Trump cabinet picks that have overt protectionist views, he said.
The incoming president has clearly signalled that Obama's trade-friendly, internationalist era is over, said Ikenson. The US steel industry lawyer Robert Lighthizer is Trump's choice for United States trade representative, the anti-China economist Peter Navarro is set to head the newly created National Trade Council at the White House and the billionaire investor Wilbur Ross, a staunch critic of the US's existing trade agreements, is Trump's pick to lead the commerce department.
"These are people who if you mentioned them a few months ago, businesspeople would shudder. Now: 'Hey, great idea, we like the enforcement mentality.' They are scared. To me, this is extremely disconcerting and dangerous. This silence of people who should be speaking out is reminiscent of the 1930s. The stakes might be different but the it's a similar sort of thing," Ikenson said.
So far, corporate reaction to Trump's election has been bland; business leaders like that he's is "pro-growth" and wants to cut red tape. But that may change once Trump is in office. The president may also find that changing the industry is harder than he thinks.
The auto industry is a global supplier with a global supply chain. While it's politically easy to target US neighbours like Mexico for "taking American jobs", the real picture is more nuanced than anything you could fit into a 140-character tweet.
Forty per cent of the parts that make up the average vehicle imported to the US from Mexico were made in the US. "We are sending them parts, engines, transmissions that then come back to us as vehicles that have been assembled," said Dziczek.
Imposing duties on foreign imports makes about as much sense as "building a concrete wall in the middle of what used to be Ford's Dearborn plant", said Ikenson. "The factory floor spans borders and oceans now. Imposing tariffs like this is like separating the chassis line from the engine line."
CAR is predicting Mexican auto assembly capacity will more than double in size between 2010 and 2020, thanks in part to lower labour costs but also to Mexico's free trade agreements with 40 countries that give it access to 47% of the world's automotive market. In the next five years, CAR predicts, most Mexican car exports will go to countries outside the North American Free Trade Agreement (Nafta), which Trump has attacked for taking US jobs. Dziczek doubts one man, even the US president, can hold back those forces. "You put a plant in place for 30 or 40 years. You don't worry about four to eight years. Plants last a lot longer than presidents," she said.
As Trump prepares to take office, Ikenson said he worried that autoworkers and other voters who backed Trump in part as a protest against the impact of decades of free trade may not like what they get. If trade agreements are scrapped and imports imposed on foreign goods, "they will be the first wave of casualties. We went from 19m workers in manufacturing in 1979 to about 12m today. That goes down to 10m workers," he predicted.
But Trump and Trump's voters have heard this argument before and they aren't buying it. On the crowded floor of Detroit's Cobo Center this week, and in the suites and conference rooms of its hotels, the car industry's biggest brains will all be working overtime trying to figure out how to deal with the man their workers elected.
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