Automakers await the Trump effect

Michael Wayland
The Detroit News

Los Angeles — Automotive executives at the Los Angeles Auto Show shared a common concern this week that had nothing to do with the new cars being unveiled: the Trump effect.

Executives in corner offices from Germany to Detroit are cautiously monitoring President-elect Donald Trump’s emerging administration to see whether it carries through with the Republican’s campaign promises of renegotiating trade deals, imposing hefty tariffs and rolling back government regulations on business and industry.

“The key is whether the candidate Trump ... differs from the president Trump, and I don’t think anybody can answer that question,” Hyundai Motor America President and CEO David Zuchowski told The Detroit News. “There are things he said during the campaign that would be a concern to a lot of countries, including South Korea.”

The largest concern for automakers is if Trump does move to end the North American Free Trade Agreement and slap a 10 percent to 35 percent tariff on vehicles and parts made in Mexico that are imported into the U.S. He also has threatened tariffs of up to 45 percent on vehicles exported from China to the U.S.

“Clearly if he is targeting NAFTA, and the Korean-U.S. Free Trade Agreement comes into his perusal that would be a concern to us,” Zuchowski said Tuesday during a J.D. Power-National Automobile Dealers Association conference in Los Angeles. “We just don’t know. It’s something we’re watching very, very carefully.”

Ford Motor Co. President and CEO Mark Fields earlier this week said a tariff such as that on Mexico “could have a huge impact on the U.S. economy.” Ford and other automakers have invested billions in plants in Mexico and have banked on using low-cost Mexican labor there for small-car production, which has lower profit margins.

“We have had conversations with the transition team,” Fields said Tuesday at the auto show’s AutoMobility LA conference, a day after the company unveiled its small EcoSport SUV that will be imported from India. “I’ve sent a congratulatory letter to the president-elect, and we look forward to working with the new administration and the entire newly elected Congress.”

A letter of congratulations may come as a surprise to many. During his campaign, Trump repeatedly assailed Ford for investments in plants in Mexico, and for planning to move production of the Ford Focus and C-MAX from its Michigan Assembly Plant in Wayne to Mexico. Fields did not say if Trump responded to the letter.

Fields as well as other executives in Los Angeles this week said their plans have not changed due to the election’s outcome. They said they are global companies that don’t base decisions on changes in regional politics.

“We are not making product decisions based on a short-term effect in one area,” said president and CEO of Volkswagen Group of America Hinrich Woebcken, who also leads North American operations. “So we completely as a professional car company accept — also like everybody — the decision of the American voters for this election, but it does not influence our product strategy momentum.”

However much automotive executives say politics will not change their operations, policies certainly do have an impact. Global regulations on pollution and fuel economy — including the Obama administration’s federal fuel-economy standards of 54.5 miles per gallon by 2025 — have caused automakers to invest billions in fuel-saving technologies.

VW unveiled its all-electric e-Golf in Los Angeles this week. Other automakers also trumpeted all-electric cars that under the Trump administration could lose federal subsidies of up to $7,500 for buyers.

While Trump did not make fuel economy regulations a main focus while campaigning, he did pledge to amend or end unnecessary regulations and government oversight. Trump’s appointment of climate-change skeptic Myron Ebell as head of his Environmental Protection Agency transition team has drawn criticism from environmental groups.

Former National Highway Traffic Safety Administration Administrator David Strickland said if the Trump administration does target fuel-economy regulations, it could cause a “balkanized marketplace” because of differing state regulations. Certain states already have adopted California’s stringent Partial Zero-Emissions Vehicle regulations.

Strickland said that going after the regional rules from the California Air Resources Board would turn into a “huge states-rights issue.” He said it would be easier for the new administration to loosen or peel back federal mileage standards during a ongoing mid-term review of those standards — not do away with them completely.

The Alliance of Automobile Manufacturers, which lobbies for U.S. automakers in Washington, said in a memo to Trump’s transition team that Trump should move quickly to “harmonize and adjust” the stringent gas mileage rules because they “pose a substantial challenge to the auto sector due to the steeper compliance requirements for model years 2017-25.”

Stock prices for U.S. automakers rose sharply last week amid signs that fuel economy standards could be weakened under the Trump administration.

Randy Miller, global automotive and transportation sector leader for EY (formerly known as Ernst & Young), said the company is closely monitoring the Trump administration’s decisions and has advised its automotive clients to do the same.

“Initial points of view are starting to come together, but it’s still very early,” he said. “It’s going to be about watching and being vigilant around that as the first 100 days of the administration comes in.”

Until that time, automakers are primarily continuing with their previously announced plans for new products and production.

“I think it’s important, with all the speculation that’s out there, just to see once the transition’s finished what the environment looks like,” said Mike Manley, head of Jeep, which introduced an all-new Compass SUV at the Los Angeles Auto Show that will be imported from Mexico to the U.S. “Like every other OEM, we’re in contact with the administration. We welcome that contact. We’re looking forward to that continuing, and we’ll see what happens.”

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Twitter: @MikeWayland