Trump tries hitting ‘reset’ with Detroit automakers
President Donald Trump attempted to reset relationships with Detroit automakers Tuesday by telling company CEOs that he wants to ease regulations to help them grow operations in the United States.
The attempt came against a backdrop of threats of “border taxes” for automakers who build cars in Mexico, and Twitter demands by the president that single out production plans that were in place months before the election.
Being summoned to the White House in the first days of the new administration puts automakers in the delicate position of having to satisfy a president who made campaign promises of bringing production home to the U.S. — and still meet the financial demands of stockholders. Some economists say the president’s promise to renegotiate North American Free Trade Agreement could have the unintended consequence of making Detroit automakers less competitive.
Trump said Tuesday he wants to create a regulatory climate that “makes the process simpler for the auto industry.” That includes streamlining the process for getting environmental approval for building new manufacturing plants in the U.S.
“We’re bringing manufacturing back to the U.S. big league,” Trump said at the meeting that included Ford Motor Co. President and CEO Mark Fields, General Motors Co. Chairman and CEO Mary Barra and Fiat Chrysler Automobiles NV CEO Sergio Marchionne, as well as other executives from Detroit’s Big Three.
“We’re reducing taxes very substantially and we’re reducing unnecessary regulations,” he added, without specifying how much or how. “We want regulations, but real regulations that mean something.”
The Tuesday meeting was the first time publicly that all three of the current Big Three chiefs have met in one room. It was a sharp contrast to the last time the heads of the Detroit automakers were called to Washington, when two of the three sought a bailout that saved the domestic car industry.
This time, the U.S. market has marked two years of record sales in the U.S., and Detroit carmakers have posted profits in the billions. Instead of skeptical lawmakers, this time they encountered a new president staking the early days of his term to a commitment to rebuild the nation’s manufacturing base.
“There’s a huge opportunity working together as an industry with government that we can do and improve the environment, improve safety and improve the jobs creation and the competitiveness of manufacturing,” Barra told reporters outside the White House.
Fields said Ford was encouraged by the president and his economic policies, including his order Monday to withdraw from the Trans-Pacific Partnership.
“We’ve been very vocal both as an industry and as a company, and we’ve repeatedly said that the mother of all trade barriers is currency manipulation, and TPP failed in meaningfully dealing with that, and we appreciate the president’s courage to walk away from a bad trade deal,” Fields said. “I think as an industry, we’re excited about working together with the president and his administration on tax policies, on regulation and on trade to really create a renaissance in American manufacturing.”
Marchionne, who flew from Italy for the meeting, did not speak after the meeting. He did shake his head “no” when asked if he had concerns about Trump’s tweets or demands.
Later, through a statement released by Fiat Chrysler, Marchionne said the company looks “forward to working with President Trump and members of Congress to strengthen American manufacturing.”
Stocks react well
Investors reacted favorably to Tuesday’s events, with stock prices rising for all the automakers. Fiat Chrysler — which has the largest proportion of trucks and SUVs, and would benefit most from a relaxation of fuel economy rules — was the biggest gainer. Its stock closed up 5.8 percent to $10.88. Ford ended the day up 2.4 percent to $12.61, and GM was up 1 percent to $37.
Focusing on jobs and plants in America were frequent campaign promises for Trump. He promised Tuesday to streamline the process for getting environmental approval for building new plants in the U.S. Permits for factories are usually left to local governments and states, but there are certain federal environmental rules that must be met.
“I think you’re going to find this to be from very inhospitable to extremely hospitable,” he said. “I think we’ll go down as one of the most friendly countries, and right now it’s not. I have friends that want to build in the United States, they go many, many years and they can’t get their environmental permit over something that nobody ever heard of before.
“I am to a large extent an environmentalist. I believe in it, but it’s out of control,” Trump continued. “We’re going to make a very short process and we’re going to either give you your permits or we’re not going to give your permits, but you’re going to know very quickly. And generally speaking we’re going to be giving you your permits, so we’re going to be very friendly.”
White House Press Secretary Sean Spicer said Trump “wanted to sit down with the auto industry in particular because he thinks they are vital to manufacturing.”
Meddling with NAFTA comes with risks
Kristin Dziczek, Center for Automotive Research director of the Industry, Labor & Economics Group, said meeting with industry officials to gauge concerns and interests isn’t unprecedented. But she’s not convinced that renegotiating the North American Free Trade Agreement or rolling back environmental regulations would be in the best interest of the auto industry.
“The auto industry likes certainty,” she said. “They want to diminish risk, and anything that this administration undoes can be redone in the next administration, be it four or eight years from now.”
During his campaign and since then, Trump has singled out carmakers for building cars in Mexico. Ford in particular has been a frequent target for Trump, who criticized the Dearborn company on multiple occasions for its decision to shift small-car production to Mexico.
Ford announced Jan. 3 it is canceling plans to build a $1.6 billion plant in San Luis Potosi, Mexico, and will invest $700 million at its Flat Rock Assembly Plant, creating 700 new jobs there. It had planned to ship production of the Focus from the Michigan Assembly Plant in Wayne to the Mexico plant.
Five days later, Fiat Chrysler said it would add 2,000 new jobs and invest $1 billion in plants in Michigan and Ohio to produce all-new Jeep models. The company said the investment would give the Warren Truck Assembly Plant the flexibility to produce the Ram heavy-duty truck, which is currently produced in Mexico — but it didn’t guarantee the truck would be built here.
And after Trump called out GM on Twitter for building Chevrolet Cruze Hatchbacks in Mexico, the company announced three days before the inauguration it would add or retain 7,000 U.S. jobs in the next few years, including more than 5,000 new salaried jobs, a significant portion of which will be in southeast Michigan.
Trump said Sunday he would begin talks with the leaders of Mexico and Canada to renegotiate NAFTA, which was enacted in 1994 to create a free-trade zone between the U.S., Mexico and Canada that eliminated tariffs on most goods produced in North America. The president followed up on Monday by signing an executive order that withdraws the U.S. from further negotiations on the Trans-Pacific Partnership, a trade deal between the U.S. and 11 other nations that’s intended to lower tariffs in the Pacific, Asia and the Americas.
Alan Deardorff, professor of public policy and economics at the University of Michigan, believes renegotiation of NAFTA will have the effect of reducing trade. He expects any changes to focus on two points that would affect auto companies: He expects Trump to try to tighten rules of origin, which require Canada, Mexico and the U.S. to tax non-members’ goods at a higher rate than goods originating from NAFTA countries. Tightening those rules might require foreign automakers to source a larger percentage of car parts from the U.S. in order to avoid a higher tariff, he said. But Deardorff said the border tax Trump has frequently mentioned would hurt the U.S. auto industry.
“That would just kind of take a chainsaw to the value chains that all these companies have developed in North America,” he said. Value chains are the process by which a company adds value to an article, including production, marketing and service.
Linda Lim, professor of strategy at University of Michigan’s Ross School of Business, said NAFTA not only allows the U.S. to build small cars for lower costs in Mexico, but gives the U.S. access to sell the vehicles to other markets with which Mexico has trade agreements.
Drastic rewriting of NAFTA could make U.S. automakers uncompetitive with the rest of the world, she said. “Moving to Mexico actually makes (U.S. automakers) more competitive and preserves and enhances jobs in the U.S.,” Lim said.
The current agreement has Detroit carmakers sending U.S.-made parts to Mexico, where companies take advantage of lower wages to assemble cars. As a result, those cars cost less, and automakers sell more of them – and thus sell more parts made by higher-wage U.S. workers, Lim said. Americans who buy those cheaper cars also have more money in their pockets.
“We focus only on a particular industry and not on all the spillover effects… It’s really going to be much more costly to manufacture in the U.S.,” she said. “NAFTA has been a job preserver, not a job killer.”
Staff writer Michael Wayland contributed.