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First the Obama administration bailed out much of the American auto industry, pulling it out of a tailspin. Then it reshaped the business, with regulations and policies intended to increase fuel economy, improve safety and add jobs.
Now, under President-elect Donald J Trump, the industry is bracing for another wholesale makeover. Perhaps no industry could be affected in more ways by the new administration than the auto business. That became all the more apparent this week, with Trump’s selection of Scott Pruitt — the Oklahoma attorney general who is a climate-change sceptic and close ally of the oil and gas industry — to run the Environmental Protection Agency. The changes under the Trump administration could include possible tariffs that will raise prices on imported vehicles and parts, fewer subsidies for electric cars and policies that discourage automakers from moving products from American factories to Mexico.
And any scaling back of fuel-economy goals by the Trump administration, if Pruitt’s climate change skepticism and embrace of fossil fuels translates to policy, could also influence the types of vehicles the industry plans to build in coming years — and where it builds them. Bigger models like sport utility vehicles and pickup trucks are less fuel-efficient than cars but more profitable for automakers. And their steeper price tags can help pay for the higher labor costs of making them in the United States.
In a move that underscored the new psychology since Trump’s election, Ford Motor — which had been a target of his criticism — in mid-November decided to keep building a Lincoln SUV in Kentucky rather than Mexico.
And yet, for a capital-intensive industry that routinely makes billion dollar bets on new factories and products, the uncertainty is unnerving.
“Our membership is just perplexed right now,” said Gloria Bergquist, vice president for public affairs for the Alliance of Automobile Manufacturers, which represents a dozen carmakers, including General Motors, Ford, Volkswagen and Toyota, on safety and environmental issues. “This is all uncharted territory.”
Trump’s campaign was studded with promises that could upend the status quo, including some to relax policies intended to cut greenhouse gas emissions and to renegotiate the North American Free Trade Agreement.
He has yet to detail any coming changes. But pursuing policies similar to those he promoted in his campaign could change the entire manufacturing industry by penalizing companies for investing overseas or by stifling free-flowing global trade.
Trump has yet to specify changes he might make to Nafta or other industrial policies. But his cabinet appointments, particularly the selection for commerce secretary of the billionaire investor Wilbur L Ross Jr, who has suggested that he is receptive to some of the antitrade views favored by Trump, indicate that the incoming president may take an aggressive approach to modifying trade deals and other tenets of the outgoing Obama administration.
One industry analyst, Ron Harbour of the consulting firm Oliver Wyman, said many voters in Rust Belt states like Michigan and Ohio backed Trump primarily because of his promises to restore manufacturing jobs in the United States.
“So there probably will be pressure to do something,” Harbour said. “And if he doesn’t do anything, they probably are not going to be too thrilled.”
Trump will inherit an auto industry that is far healthier than when President Obama took office and industry officials could push back strongly on disruptive changes.
But auto executives generally support Trump’s choice of a former labor secretary in the George W Bush administration, Elaine Chao — who is also the wife of the Senate majority leader, Mitch McConnell — to head the Transportation Department. The department oversees fuel-economy and safety rules that affect the types of vehicles that automakers produce.
“We all have a common interest, and that is to maximise the rate of innovation in the technologies that save lives, avoid crashes and improve fuel economy,” the auto alliance said in response to Chao’s appointment.
No change would be more consequential to the auto industry than applying steep tariffs on imports from Mexico and elsewhere. Companies could be forced to radically change how and where they get commodity parts, the production of which has been migrating to low-wage nations for decades. Consumers could see a change in the types of cars available.
Despite Trump’s campaign rhetoric, the American automotive industry and auto jobs have been buoyant since the Obama administration’s bailout.
Since 2010, vehicle production has doubled in the United States, and hundreds of thousands of workers have been hired. Last year, a record 17.4 million cars and trucks were sold in the United States, and analysts forecast strong demand for several years.
“You have record levels of production and record levels of demand,” said Mike Jackson of the research firm IHS Markit. “There is every reason for the industry to emphasize that it’s in a very strong position.”
Still, the industry is anticipating changes from Trump. Ford, the nation’s second-largest automaker after General Motors, uncharacteristically made public a decision to keep production of the Lincoln SUV in Kentucky, after Trump had singled out the company for its growing investments in Mexico.
Ford, like GM, Fiat Chrysler and nearly every foreign automaker, has a huge stake in protecting the interlocking network of factories and parts suppliers made possible by Nafta.
Plants in Mexico are crucial to meeting surging demand for new vehicles in the United States. Beyond that, automakers have already committed big investments to new plants in Mexico to take advantage of its cheaper labor and export-friendly trade agreements.
While Trump has yet to specify how he would renegotiate Nafta, his emphasis has been on increasing American jobs and discouraging automakers from using foreign plants to supply the American market. His proposal to put tariffs of as much as 35 per cent on vehicles imported from Mexico has stunned auto executives who have built their business models on open borders for cars, trucks and the thousands of parts in them.
“A tariff like that would be imposed on the entire auto sector, and that could have a huge impact on the US economy,” said Mark Fields, chief executive of Ford.
Imported vehicles are an integral part of the American market and account for more than 40 per cent of its annual volume. Last year, about eight million cars, trucks and sport utilities sold in the United States were built elsewhere, primarily in Mexico, Canada, Japan and Korea. Nearly all of them enter the market free of tariffs that would increase sticker prices significantly.
Increasing the price of an imported vehicle with tariffs could reduce overall vehicle sales and exert economic pressure on manufacturers as well as on freight haulers, dealerships and independent service centers.
And if Trump chooses to impose tariffs on auto parts produced abroad and shipped to plants in the United States, the impact will spread further.
Last year, auto parts worth $143 billion were imported into the United States, about 35 per cent of them from Mexico, compared with $81 billion in parts that were exported, according to the Commerce Department.
Many big suppliers, however, are global and make parts in every region of the world.
The parts industry’s largest American trade group, the Motor & Equipment Manufacturers Association, said its member companies employed more than 734,000 workers in the United States, and generated another 2.9 million jobs in related businesses. The industry is acutely sensitive to changes in trade policies that could have a ripple effect on its ability to ship parts in and out of the country.
And like automakers, parts manufacturers are anxious to know what Trump has in store for them.
“Now that the election is over, we can begin to explore what to expect in the months to come,” the trade group’s president, Steve Handschuh, wrote in a letter to its members, adding that he was eager “to express our priorities” to the Trump transition team.
In addition to Trump’s focus on trade issues, the industry is expecting policies that diverge from the Obama administration’s enthusiastic support of electric cars, including the $7,500 tax credits that encouraged consumers to buy them, and for the testing and development of self-driving vehicles.
In a November 10 letter to the Trump transition team, the auto alliance asked for clarity on policy changes as soon as possible. “Auto manufacturing is a highly capital-intensive business, and because of that we rely on long-term certainty,” Bergquist wrote.
Yet the industry has proved to be adaptable to shifts in government, whether by building more fuel-efficient vehicles to meet new regulations, or increasing investments in Mexico because of Nafta.
It is also more focused on self-interest than politics. In its eight-page letter, the auto alliance laid out several goals — including repeating its position that the government re-evaluate its timetable for automakers to achieve fleetwide fuel economy of 54.5 miles a gallon.
But while the letter was perceived as tailored to Trump’s agenda, Bergquist said it was composed before the election and would have been sent to an incoming Clinton administration had the outcome been different.
“Our position was the same, no matter who won,” she said.
Key points:
- Trump’s selection of Scott Pruitt, climate-change sceptic to run EPA, signals auto industry is set for a makeover
- The changes under Trump could include possible tariffs that will raise prices on imported vehicles
- He can also introduce fewer subsidies for electric cars and policies that discourage automakers from moving products from America
- Any scaling back of fuel-economy goals by the Trump administration could also influence the types of vehicles the industry plans to build in coming years
© 2016 The New York Times News Service
