On the same day Republican Donald Trump used Toledo to renew his call for tariffs on automakers who sell Mexican-built vehicles in the United States, the boss of Fiat Chrysler Automobiles NV sent a message:
Come next year, CEO Sergio Marchionne confirmed Wednesday, his Auburn Hills-based unit will cease assembling cars in the States as it searches for a partner to manufacture its vehicles. Where? Presumably in Mexico, public enemy No. 1 in Trump’s campaign to rewrite “stupid” deals like the 22-year-old North American Free Trade Agreement.
Satisfying rising demand for higher-margin Ram trucks and Jeep SUVs from costlier U.S. plants is a wiser use of shareholder capital than using those same plants to build the lower-margin cars fewer customers want. If Detroit learned anything from its near-death experience in the global financial meltdown, it’s that poorly allocating finite cash can have disastrous results for jobs and the bottom line.
It also learned that there’s no such thing as “Detroit economics,” the false construct of the Golden Age shattered by the near-collapse of 2008-2009. Detroit automakers that no longer control the vast majority of the market like they did in, say, the 1960s must be competitive in all phases of the business to sustainably prosper.
Reviving the Golden Age of Trump’s (or Democrat Hillary Clinton’s) conjuring would demand more than some kind of undefined rewrite of NAFTA. It somehow would require eliminating the foreign-owned competition now claiming more than 50 percent of the U.S. market. It would assume building small cars in union plants would magically be more profitable than it is now.
And it would expect investors to accept even lower profit and growth rates than they’re grudgingly accepting now. Given the dim view Wall Street’s investment capital currently takes of Detroit, imagine its collective share value once a Trump or Clinton NAFTA revision is concluded and the costs for doing North American business rise — which they would with tariffs on repatriated products.
A Trump presidency “would change things if there was a stronger protectionist view of U.S. interests on American soil,” Marchionne told Bloomberg TV last month at the Council for the United States and Italy’s annual workshop in Venice. “If globalization efforts that have been carried out by multinationals get clipped or curtailed, I think it would have implications about how we manage our business going forward.”
Exactly. How remains to be seen, underscoring the uncertainty that revising trade deals portends for the automakers, the United Auto Workers and American jobs. In Toledo, Trump told The Detroit News the tariff he first pegged publicly at 35 percent for cars built in Mexico “may be 10 percent, it may be 5 percent, it may be 20 percent.” Or it could be nothing.
Trump, the businessman, should understand that, even if Trump the GOP nominee for president chooses otherwise. Demagoguing trade deals in the industrial heartland is a sure-fire, even bipartisan, winner in states like Michigan and Ohio, Pennsylvania and Indiana — and it’s likely to rank among the seminal battles between Trump and Clinton for the White House.
NAFTA remains a white-hot issue in the electorally critical Midwest. Hundreds of thousands of job losses are blamed on the pact, which essentially created more job-killing imports from Mexico than job-creating jobs at home. But the era also coincides with a time of fundamental uncompetitiveness and drift in Detroit, a fatal combination of too many plants, too many employees and too few customers.
The coming general-election fight won’t be over who actually “Let Detroit Go Bankrupt” (hint: he’s president of the United States, not the former governor of Massachusetts). It will be over who can promise enough change to the Bill Clinton-era NAFTA without once again endangering a cornerstone industry the Obama administration spent billions in taxpayer money to bail out.
If Marchionne’s move on cars, and his warning to Trump, mean anything, it’s that capital must be mobile and smart. And it will continue to be in a global economy no single politician can command. The Detroit-based automakers, with union workforces Trump aims to woo with his tough trade talk, already are investing, and reinvesting, in U.S. plants.
Finally, government-imposed dictates driven by politics have a poor track record. They generally misread economic, market trends and consumer preference because — gasp! — political ideologues steering bureaucracies and policy-making typically have little experience running private-sector businesses. It shows.
Case in point: Team Obama’s biases for hybrid vehicles and sharply higher fuel economy rules, two byproducts of the auto bailouts, are not reflected in the reality of today’s market. Instead, consumers are demonstrating a hunger for pickups and SUVs powered by comparatively cheap gas.
There’s a lesson in that for any presidential candidate with enough humility to ask the automakers, the UAW and with the wisdom to learn. Don’t count on it.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.