TRUMP SPECIAL: Pressure from Trump ‘not driving’ US carmaker decisions
Social media pressure exerted on major carmakers by Donald Trump, is probably not why many have opted to shut operations in Mexico in favour of new ventures in the USA – even if the US president-elect is taking credit for their decisions.
“Any decision by a major automaker to close a plant, [or] shut down a plant for a week or two, is based on purely financial reasons,” Michael Harley, an executive analyst with Kelley Blue Book, told Metal Bulletin sister title AMM.
So when it comes to Ford’s recent cancellation of its $1.60 billion compact-car production unit in San Luis Potosi, Mexico, in favour of a $700 million update to its plant at Flat Rock in the US state of Michigan, Harley feels that the events are merely coincidence.
Despite appearances, he said, Ford’s decision has little to do with Trump.
“[Did the US] president-elect’s tweet affect a multi-billion-dollar company? [It is] highly unlikely,” Harley said.
Antagonism between Ford and Trump was evident through Trump’s unlikely electoral campaign and subsequent victory, with the then-candidate using Ford’s plans at San Luis Potosi as an example of jobs being siphoned away to Mexico to the detriment of American workers.
During an earnings call in April, Ford responded that it would not deviate from its plans because of anything said on the campaign trail.
“What you’ve seen so far has more to do with capacity utilisation than politics,” David Zoia, executive director of content for Wards Automotive Group, said.
Zoia agreed with Harley’s assertion that Ford’s decision was unrelated to Trump’s tweeting, and believed that it had everything to do with slumping car demand, along with under-capacity at Flat Rock.
However, it may be no accident that Ford president and ceo Mark Fields cited Trumpian politics when announcing his company’s decision at a news conference on January 3. “Make no mistake about it – Ford is a global automaker, but our home is right here in the USA,” he said.
“It’s more of a PR opportunity to say, ‘We’re closing this,’ and appease Donald Trump,” Zoia said, pointing to Trump’s move away from attacking Ford since Fields’ announcement.
Trump seems to have received the message that US carmakers will act to appease him if they are attacked, judging by the swath of automotive manufacturers he has targeted since Ford. Just recently, Trump lined up other major makers to attack via Twitter, including General Motors and Toyota.
“Toyota Motor said that it will build a new plant in Baja, Mexico, to build Corolla cars for the USA,” Trump said in a tweet dated January 5. “NO WAY! Build plant in USA or pay big border tax.”
Among some market participants at least, the strategy may be to endure the criticism and try to avoid becoming embroiled in a larger controversy, until Trump becomes distracted by another cause and leaves carmakers alone, Zoia said.
“If Trump declares victory and turns his attention to something else, that’s a victory for the automotive industry,” he said. “I think it was a smart move by Ford – everybody’s got to be concerned about him criticising them publicly.”
Fellow carmaker FCA has followed suit, announcing a $1 billion investment into two of its US facilities on January 9. However, much like the Ford announcement, this move probably had little to do with Trump, especially since the Michigan-based company said it was part of an industrialisation plan that it had detailed in January 2016.
Toyota has defended its track record with investments into US manufacturing, to the tune of $21.9 billion over the past 60 years. Additionally, a Toyota executive at the North American International Auto Show recently announced a new investment of $10 billion into US operations, according to recent media reports.
That said, Toyota has not announced cuts to its operations in Mexico, nor has General Motors. In a separate development, GM chairman and ceo Mary Barra is among a group of 16 executives who will go to the White House in February to meet with Trump for an economic forum.
However, even if Trump is not directly influencing carmakers’ decisions now, his presence may weigh on them as his administration becomes settled into power and proposes legislation.
“I don’t think any carmakers with a blank sheet of paper are thinking about pouring concrete [to build new units] south of the [USA-Mexico] border,” Harley said.
“I think everybody is definitely concerned about what direction he’s going to take,” Zoia said, noting that carmakers are now casting “a wary eye” on the administration’s possible influence on the supply chain of automotive parts coming from Mexico. This is especially so, considering Trump’s insistence that he will renegotiate the North American Free Trade Agreement (Nafta).
Also uncertain is the effect that the administration could have on corporate average fuel economy (Cafe) standards. Specifically, whether such standards may be softened in line with Trump’s open criticism of the US Environmental Protection Agency (EPA).
However, experts told AMM in December that Trump’s relationship with the EPA would probably not affect Cafe. The rules are spearheaded by the USA’s National Highway Transportation Safety Administration (NHTSA), which enforces them with the idea of achieving energy independence – a goal which is in line with those of the Trump administration.