News
Automakers Say Trump’s Anti-NAFTA Push Could Upend Their Industry
By: Sonari Glinton | NPR
Posted on:
Automakers are watching closely as the Trump administration tries to renegotiate the North American Free Trade Agreement, and the latest round of talks is under way in Mexico City this week.
NAFTA touches almost every business sector — few more than the car industry. Automakers say that changing the agreement could boost their costs and make them less competitive.
Covering approximately 450 million people in the U.S., Canada and Mexico, NAFTA is the world’s largest free-trade area — with $20 trillion in economic output. The three countries represent nearly a quarter of the trade in passenger vehicles worldwide, according to the Center for Automotive Research.
How would changing the 24-year-old agreement affect the auto industry? To answer that, it’s important to understand that not all car companies are the same.
Take Ford. No matter how you look at it, it’s a truck company. That’s what it sells the most of; that’s what it’s best at. More than 90 percent of Ford’s profits come from the F-series pickup, such as the F-150, according to Morgan Stanley.
The average amount of U.S. content in a Ford vehicle sold in the U.S. is 80 percent, according to Joe Hinrichs, Ford’s head of global operations. He says Ford makes a higher percentage of its vehicles in the U.S. than any other car company.
The Trump administration wants to change the equation for what qualifies as a vehicle to be free from taxes and tariffs under NAFTA. Under current rules, 62.5 percent of a vehicle must be made in Mexico, the U.S. and/or Canada to qualify.
President Trump wants that number to go up to 85 percent. In addition, the administration wants 50 percent of the vehicle to be made in the U.S.
Ford is the most American car company, in terms of cars sold in the U.S. and content that comes from the U.S. That’s why Hinrichs was upbeat at a recent Detroit event.
While other carmakers have been wringing their hands over NAFTA, Hinrichs said: “We’re in a good position to make all our trucks here. We’re bringing the Ranger (a midsize pickup) and Bronco here. We’re adding capacity at Flat Rock (assembly plant) to build the autonomous vehicle here. So we’re … looking forward to modernization of NAFTA that works for everybody.”
Fiat Chrysler Automobiles, Ford’s crosstown rival, is a bit different. Fiat Chrysler is a truck, SUV and minivan company, having invented two of those categories. (Its Jeep unit pioneered the SUV with the Wrangler; the Dodge Caravan and Plymouth Voyager were the first modern minivans.) And it’s both an American and European company.
Fiat Chrysler CEO Sergio Marchionne was more blunt in his assessment of possible changes to NAFTA. “I sincerely hope that some of the demands that are being pushed by the U.S. administration are going to be retuned,” he told journalists at the North American International Auto Show in Detroit in January.
His company recently announced plans to increase production in the U.S., as well as giving workers a $2,000 bonus to celebrate the new tax bill.
He jokes that Fiat Chrysler has been willing to play ball with the administration, but he says NAFTA does not need to be torn up to bring more auto jobs to the U.S.
“I don’t think we need to go to the 85 (percent content) number to try and address what President Trump’s concerns are,” Marchionne said. “I’m hopeful that I think we’ll see a more rational number going forward.”
Then there’s Toyota, a company that makes a lot of vehicles in the U.S. and sells many of them overseas.
“We export 136,000 vehicles (annually) to almost 40 countries around the world. We can only do that and be competitive with NAFTA,” says Jim Lentz, Toyota’s North American CEO.
Toyota, which sells more cars in the U.S. directly to consumers, is also a lean company. Other manufactures, such as Ford and General Motors, do more sales to fleets and governments.
Lentz says he’s worried that meddling with NAFTA will raise costs. “Russia is going to say (do) I want to buy a (Toyota) Highlander coming out of the U.S.? Or maybe it’s less expensive to buy it out of another plant coming out of China,” he says.
NAFTA talks among the U.S., Canada and Mexico are scheduled to end in March.
Monica de Bolle, an economist with the Peterson Institute for International Economics, says changing the mix of where the cars come from “would basically force carmakers to rethink their entire production structure.”
Even if the administration got everything it wanted, she says, bringing factory jobs back to the U.S. would take several years. And if the jobs do come back from Mexico, she says, they would likely be done by robots.
9(MDI4ODU1ODA1MDE0ODA3MTMyMDY2MTJiNQ000))