How tariff could affect carmakers
DETROIT — The threat from President Donald Trump to tax Mexican-made cars sold in the U.S. would throw the industry into disarray, analysts say, forcing some uncomfortable choices: Raise car prices or swallow the cost. Stop selling Mexican-made cars in the U.S. but risk losing customers. Move production to the U.S. but make less money.
“I don’t think the auto industry would turn up its feet and die, but it would be a terrible shock. It would create mayhem with their profitability,” said Marina Whitman, a professor at the University of Michigan and a former vice president at General Motors Co.
Trump planned to host a breakfast meeting today with the heads of General Motors, Ford Motor Co. and Fiat Chrysler Automobiles. On Monday he reiterated his warning to impose a “substantial border tax” on companies that move their manufacturing out of the United States. He also promised tax advantages to companies that produce products domestically.
For more than two decades, Mexico has been an oasis for the auto industry, offering cheap labor and access to dozens of markets through free-trade deals. Whitman says Detroit automakers can’t build small cars profitably in the U.S., where a unionized auto worker can make $58 an hour in wages and benefits. A Mexican auto assembly worker makes a little more than $8.
That helps to explain why automakers have announced $24 billion in Mexican investments over the last six years, according to the Center for Automotive Research, a Michigan think tank. In all, $50.5 billion in vehicles and $51 billion in auto parts were shipped to the U.S. from Mexico in 2015, U.S. government data show.
Mexico’s auto sector, while still smaller than the U.S., is growing at a faster clip. Mexico’s vehicle production capacity is expected to rise 49 percent to 5.5 million vehicles by 2023, according to LMC Automotive, a forecasting firm. U.S. capacity will grow 13 percent to 14.2 million vehicles in the same period.
But Trump could change that. In frequent tweets targeting the auto industry, he has proposed both a 35-percent tariff on Mexican-made imports and a “border tax,” which would tax companies’ imports. That’s forcing automakers to consider a number of options.
Abandoning Mexico and moving production to the U.S., as Trump demands, would cost the industry billions and scuttle plans that have been years in the making. Audi, for example, just opened a plant in Mexico that it decided to build five years ago.
In recent weeks, Volkswagen, GM, Toyota and BMW have all said they won’t shift their production plans, while stressing the amount they’ve invested in the U.S. BMW, for example, said it’s proceeding with a $1 billion plant in Mexico that will make the 3 Series sedan starting in 2019. The German automaker also noted that its SUV plant in South Carolina is its largest plant worldwide.
