Carmakers Thought Donald Trump Would Be Their Friend. Mexico Shows How Wrong They Were.
Think back to the first year of the Trump administration. The beaming members of his manufacturing council included the CEOs of Ford and Tesla.
Mary Barra, the CEO of General Motors, sat on another presidential panel, the Strategic and Policy Forum. Meanwhile Trump heaped praise on another auto chief, Sergio Marchionne of Fiat Chrysler.
“Right now, he is my favorite person in the room,” Trump said during a 2018 White House meeting on fuel economy standards, held a few months before Marchionne died.
And, from a corporate perspective, Trump’s anti-regulatory philosophy must have seemed like a reprieve following the environmentally focused Obama administration.
After all, Obama raised fuel economy standards. Even though his administration spent tens of billions on a federal bailout, he waxed favorably about electric vehicles and hybrids, and even owned one of the latter.
Trump’s effusiveness now seems in the distant past. compared with the potential nightmare that the car companies now face.
Obsessed with immigration, he has threatened to close the U.S.-Mexico border if Mexico does not stop migrants from crossing.
When warned Tuesday that could cause economic chaos, Trump replied, “Security is more important to me than trade.”
If he does follow through with his threat, Trump could easily damage the industry only a decade after it was brought back to life through the intervention of two presidents.
And the impact on Mexico could be even more devastating.
A New Auto Industry
In the 25 years since the original North American Free Trade Agreement, it has built a completely global industry, benefiting both its citizens and those of the United States and Canada.
Mexico has become the world’s fourth-largest exporter of automobiles. About 14 percent of the vehicles sold by automakers in the United States are built at plants in Mexico.
Production sweeps from the Gulf of Mexico to the Baja Peninsula. Virtually every key region in the northern two-thirds of Mexico has some kind of automotive presence.
Eight different global car companies — the Detroit Three, Toyota, Nissan, and Volkswagen to name some — have factories in Mexico, 19 in all.
Mexico is a mirror image of the new automobile industry that has sprung up across the American South since the 1980s, only its factories also include those from General Motors, Ford and Chrysler
And that’s just car and truck production. Accompanying these plants have been a vast network of automobile suppliers. Some of them have set up shop on parts-making campuses, where multiple companies have operations.
By 2020, car production in Mexico is likely to hit 4 million vehicles. The investment there is right around $14 billion, with more planned.
All of this came about because of free trade between Canada, the U.S. and Mexico.
The Mexican economy, far more cyclical than its northern neighbors,, doesn’t have the depth to support this vast expansion if vehicles were built solely for local consumption.
How To Deal With Trump
Automakers are no doubt trying to figure out how seriously to take Trump.
He often sends up trial balloons before he acts. His threat to declare a state of emergency to find money to build a border wall was part of the Washington conversation for weeks before it actually happened.
But that happened. And Trump has proven to be so mercurial that no one can doubt that if he wants to close the border, he’ll tell people to do it.
Of course, it’s not as easy as simply shutting down checkpoints in California and Texas.
The “border” with Mexico also includes air travel, and halting flights from Mexico to the United States would affect not only trade, but tourism, not to mention the number of Americans who are working in Mexico on assignment for global companies.
As I discussed Wednesday afternoon on MSNBC with Ali Velshi and Stephanie Ruhle, air freight might be a possible workaround for carmakers to keep the flow running from Mexico to the United States.
But, it ridiculously expensive to ship auto parts and finished vehicles by air.
Chrysler tried to do so with a limited luxury car called the TC by Maserati and Cadillac shipped car bodies from Italy’s Pininfarina for its Allante. But both strategies ultimately proved too costly when the cars failed to sell.
So, car companies simply have to sit in limbo while they figure out whether their former pal in the White House is serious or whether he’s bluffing in his endless obsession with Mexico.
That’s of course when Trump isn’t berating Barra for making a business decision about GM’s plant in Lordstown, Ohio.
At this point, you can’t even call the president an auto industry frenemy. It’s become a toxic relationship. And it could become more poisonous until an antidote is found.
Micheline Maynard is an author and journalist who tweets @mickimaynard