Detroit’s automakers soon will cut another round of profit-sharing checks, dollars and cents proof that big money can be made building cars and trucks in the United States.
It’s something to celebrate, this annual rite that injects tens of millions of dollars into the economy — an average of $9,000 each for United Auto Workers members at Ford Motor Co. and roughly $5,000 each at Fiat Chrysler Automobiles NV.
But results like that are not guaranteed, whatever President Donald Trump and the union contracts say. Few know that with more clarity than hourly workers, who not too long ago gutted through the most harrowing time this town’s auto industry has ever seen.
“You cannot take the industry for granted,” General Motors Co.’s chief economist, Mustafa Mohatarem, said this week. “It’s cyclical industry, and it’s changing rapidly.”
Yes, it is. Credit a real world being transformed by technology-empowered mobility, changing consumer expectations, new emerging markets and an abrupt changing of the political guard in Washington. All of it is threatening to upend a generation of assumptions governing the global auto industry — and maybe some of its profitability.
Just days after assuring Detroit’s auto CEOs that his administration would move ahead with corporate tax cuts and regulatory reform in exchange for new investments in the United States, Trump signaled Thursday he would consider a 20-percent tax on all Mexican imports into the United States as a way to pay for his proposed border wall.
Details would be critical, of course. Behind the scenes of the Detroit-based industry’s early talks with the Trump administration, discussions are underway between congressional leaders and industry lobbyists over how to address cross-border trade with Mexico without sparking a tariff war, a high-ranking industry executive said.
One option envisions using tax reform to encourage companies to increase exports and reduce imports by taxing only imports. The move likely would be more beneficial to automakers who produce more of their high-volume vehicles in the United States than in Mexico.
Ford, for example, produces all of its F-Series pickups at home; both GM and FCA build pickups in Mexico for export back across the border; and Volkswagen AG’s VW and Audi brands, among other foreign-owned rivals, build vehicles in Mexico for sale in U.S. showrooms.
Still, a “border adjustment,” in Washington-speak, could profoundly effect all automakers and major suppliers, many of whose parts cross the border several times before becoming part of a finished vehicle. In general terms, costs would go up and profits would go down.
A border tax presumably would apply to all cars and trucks assembled by any automaker — American or foreign-owned — importing vehicles into the states under terms of the 23-year-old North American Free Trade Agreement that Trump appears perilously close to abrogating unilaterally.
That might be the kind of “rapid change” Mohatarem is talking about. If there’s one thing the folks conjuring what to do with their coming profit-sharing windfall should remember it’s that the good times may carry into this year’s sales, even the next. But they don’t last forever.
The upward trajectory of auto sales, the longest year-over-year upswing since the 1960s, is beginning to level off. Continuing softness in car sales is causing Ford to ship compact car production to Mexico, GM to idle a shift building the compact Chevrolet Cruze and FCA to begin the process of exiting parts of the car business altogether.
The low gas prices and low interest rates that have powered the industry’s sales gains are expected to stay comparatively low. But the Obama-era regulatory regime that has reshaped the industry since the global financial meltdown is likely to be radically reworked by Team Trump.
How that would affect production, sales and, especially, profits remains to be seen. And it’s too soon to know the financial impact of Trump’s push to extract more U.S. production (and more jobs) from the industry in exchange for tax and regulatory reform.
After eight years of largely anti-business Obama, business and industrial labor leaders look to be getting seats at the presidential table again — a pre-condition for more business-friendly policy-making in Washington that still spells change.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.