Howes: NAFTA, fed fuel rules, China press Detroit autos
Now comes a tricky year for Detroit’s automakers.
Union members can look forward to generous profit-sharing payouts. Salaried bonuses could start arriving as soon as later this month. A slight slowdown in car sales still is on track to deliver fat bottom lines bolstered by hot-selling trucks and SUVs.
All good in the town that helped put America on wheels, nearly lost it all, and is demonstrating that “Detroit automakers” is not a collective synonym for willful mediocrity. But challenges loom that could materially impact the industry, the arc of its financial performance and the next chapter of mobility, autonomy and electrification.
Will the Trump administration make good on its threat to bolt the North American Free Trade Agreement after 24 years, throwing the continent’s cross-border manufacturing network and supply chain into predicted disarray?
In a briefing prepared last year before President Donald Trump’s inauguration, the Ann Arbor-based Center for Automotive Research warned that U.S. withdrawal from NAFTA “could result in the loss of at least 31,000 U.S. automotive and parts jobs.”
“Any move by the United States to withdraw from NAFTA or to otherwise restrict automotive vehicle, parts and components trade within North America will result in higher costs to producers, lower returns to investors, fewer choices for consumers and a less competitive U.S. automotive and supplier industry,” the report says.
Automakers are betting time, and the reality of how the industry has evolved over the past generation, would be on their side. With its political fortune rooted in the industrial Midwest, the Trump administration so far has proven to be responsive to industry concerns.
And that likely would extend to renegotiating parts of NAFTA instead of engineering a wholesale withdrawal, the thinking goes, which would drive costs higher and imperil assembly and supplier jobs in Great Lakes states.
Second, how will another “mid-cycle review” of federal greenhouse gas and fuel economy targets promised by Team Trump differ materially from the effort the Obama administration, in its waning days, effectively imposed on the industry nearly two years ahead of the original schedule?
With droves of consumers abandoning cars for trucks and SUVs, the industry likely will be lobbying federal regulators to ease targets for the 2022-2025 model years — targets the Auto Alliance lobbying group last year said would require automakers “to spend a staggering $200 billion between 2012 and 2025 to comply.”
How that process unspools could meaningfully impact bottom lines if the automakers are held to the Obama-era targets. That’s especially problematic should consumers keep shunning cars, as well as the gas-electric hybrids and the full electric vehicles loved far more in theory than in the marketplace.
Third, China is driving change and competition across the global industry. Will Detroit’s automakers keep pace with its demands for increasingly electrified fleets, even as U.S. consumers (and regulators) effectively slow-walk adoption?
Just this week, the Renault-Nissan-Mitsubishi alliance said it had reached a “memorandum of understanding” with China’s Didi Chuxing, the country’s largest ride-sharing company, to develop an electric car-sharing plan for the world’s No. 1 market.
That’s a metaphoric stake in the ground neither General Motors Co. nor Ford Motor Co. can afford to ignore. The Franco-Japanese alliance led by longtime CEO Carlos Ghosn says it’s on track to post combined revenue of $240 billion within four years and to sell more than 14 million vehicles annually.
Finally, the Chinese auto industry is spreading into the United States, says Michael Dunne, a former president of GM-Indonesia who heads Hong Kong-based Dunne Automotive Ltd.: “The Chinese are installed in cities across America — and very active. It is just that most Americans have not taken notice.”
In 2015, his firm established a database to track Chinese automotive activity in the United States: 53 Chinese-owned automotive companies operating in the U.S. have invested “tens of billions” of dollars and employ “tens of thousands” in California, Michigan, Ohio, Indiana, Kentucky, Georgia and South Carolina.
Guangzhou Automobile Group Motor Co. Ltd. used last month’s Detroit auto show to confirm plans to enter the rich U.S. market at the end of next year. But it’s suppliers with names few know — or Chinese acquisitions of familiar names — that are more frequently used entry paths into the U.S. auto space.
The result is more competition for hometown automakers whose leaders cannot tolerate the complacency this town manufactured for decades. Those days are over.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him at 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.