Howes: Global auto reality confounds ‘Build America’
President-elect Donald Trump’s Build America campaign might need a slight rethink.
The global auto industry mostly isn’t cooperating, notwithstanding Ford Motor Co.’s reversal this week of plans to build a new $1.6 billion assembly plant in San Luis Potosi, Mexico.
Ford’s Focus still will come from Mexico, and its new subcompact SUV, the Eco-Sport, will be built in India and shipped to the United States. General Motors Co.’s Buick Envision, a midsize SUV that United Auto Workers President Dennis Williams dubbed the “Invasion,” is assembled in China for sale in the U.S. market.
Fiat Chrysler Automobiles NV’s new compact SUV, the Jeep Renegade, will be imported from Italy. Its new Pacifica minivan comes from Ontario. And all but one major vehicle shown by the Detroit Three at the Los Angeles Auto Show in November — GM’s Chevrolet Colorado pickup — is being assembled outside the United States.
Team Trump has its work cut out for it. Its Build America campaign adds a costly footnote to the industry mantra “build where you sell”: if you don’t, the whole process risks becoming a lot more expensive until you do.
In theory, anyway. That’s before the new boss trains his Twitter account on foreigners importing foreign-built vehicles for sale to unsuspecting Americans who just want to drive what they want to drive. Even he might find the complexity mildly exhausting.
Cases in point: Toyota Motor Corp.’s new compact SUV, the CHR, hails from a plant in Turkey. Audi AG’s Q5 SUV comes from Mexico, as do Volkswagen-brand vehicles Jetta, Golf and Beetle. With the exception of GM’s Chevy Sonic, all subcompacts sold to U.S. consumers come from foreign assembly plants.
Germany’s Daimler AG and Renault-Nissan are following rival Audi to Mexico in a partnership to build luxury Mercedes-Benz and Infiniti vehicles there. GM and FCA are expanding production there, joining a list of global players increasingly choosing Mexico over the American South for assembly sites.
In a 2015 interview with The Wall Street Journal, Audi CEO Rupert Stadler offered one of the reasons why. “Mexico had more than 40 different free-trade agreements,” he explained, giving auto exporters access to markets accounting for roughly 60 percent of the world’s economic output.
As in, duty-free access. As in, without the “big border tax” Trump threatened in a tweet aimed earlier this week at GM and its temerity for building Chevy Cruze hatchbacks (destined mostly for foreign markets) in Mexico.
Another reason: the cost of doing business in the United States, particularly in the South, makes Mexico a more attractive investment because it offers duty-free access to the lucrative U.S. and Canadian markets, too. High U.S. corporate taxes and costly regulations don’t help.
Now, there is absolutely no doubt that Trump’s Build America riff resonates with many voters, especially here in the industrial heartland. Truth is, families and unions leaders, auto CEOs and average auto working stiffs, have been waiting decades for a would-be president of the United States to say two words:
Hold on. They yearn to hear a president question an apparently one-way approach to global trade. That is, deals get cut, jobs leave, and all they have to show for it is another lousy foreign-made car (or necktie with “Trump” embroidered on it).
Global economics forced through the lens of national politics are more complicated than the just-build-it-all-here crowd is willing to concede. So are the “rules” that tend to govern behavior and decision-making in the auto industry — until they don’t.
Another case in point is the common “build where you sell” mantra. It’s a flag executives wave when justifying, say, Toyota’s decision to build big full-size pickups in Texas, or BMW’s plan to assemble SUVs in South Carolina, or Honda’s decades-old gambit in central Ohio.
It’s also easily discarded when the numbers and detailed trade agreements tell them it makes more financial sense to build products overseas and export them than invest billions here and employ American workers. See subcompact cars and SUVs.
The coming months are an opportunity for Trump, his economic team and Republicans Congress to give automakers more than one reason — on tax and regulatory reform, to name two — to reverse the trend. That would get more attention that a tweet.
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.