What President Trump Means for American Automakers

November 9, 2016, 2:25 PM UTC

The election of Donald Trump as U.S. president puts new pressure on automakers and other manufacturers that have become dependent on open trade with Mexico, and raises the risk they will face higher costs.

Automakers could also take a hit if instability in financial markets undercuts the confidence of consumers in the United States and other major markets at a time when growth in U.S. auto sales has stalled.

Investors sold off U.S. stocks and the dollar in reaction to Trump’s unexpected win. Shares in Japanese automakers, which also rely on Mexico as a production hub for the U.S. market, slid as well, underperforming the benchmark Nikkei index, which fell 5 percent.

In afternoon Tokyo trade, shares in Toyota Motor Corp were down 6.5 pct, Nissan Motor Co Ltd was down 6.0 pct, while Honda Motor Co fell 7.8 pct. All three companies declined to comment.

Trump’s promise to scrap the North American Free Trade Agreement and reject or renegotiate other trade opening deals resonated with voters in industrial states, even though many experts raised doubts that the 1994 NAFTA would be repealed.

Trump made an attack on the outsourcing of American auto jobs to Mexico a recurrent theme in his campaign, a message that rallied blue-collar workers while threatening to upend the business assumptions behind billions of dollars in planned investment by the auto industry.

In announcing his campaign in June 2015, Trump vowed to block Ford Motor Co from opening a new plant in Mexico and threatened to impose tariffs on cars it shipped back across the border.

But implementing Trump’s agenda would force U.S. consumers to pay higher prices for vehicles, said Charles Chesbrough, senior economist and executive director of strategy and research at the Original Equipment Suppliers Association, a Detroit-based trade group representing auto suppliers.

“His trade policies could add $5,000 or more to the price of a small car from Mexico,” he said.

U.S. manufacturers such Ford, General Motors Co, heavy equipment maker Caterpillar Inc and many of their suppliers have based billions of dollars of investment on the assumption of relatively open trade with Mexico, China and other countries.

Ford in April announced plans to invest $1.6 billion to expand production of small cars in Mexico, drawing fire from Trump. Trump also took aim at GM for its plans to invest $5 billion in Mexico.

In September, Ford said its small-car production would be leaving U.S. plants and heading to lower-cost Mexico, drawing another rebuke from Trump.

“We shouldn’t allow it to happen,” Trump said.

Ford Executive Chairman Bill Ford last month said he met with Trump to discuss criticism from the candidate, which Ford said he found “infuriating” and “frustrating.” Ford said his company employs more people at its U.S. plants than any other automaker. The company also said its decision to build new vehicles in Mexico would not cost U.S. jobs.

Between 1994 and 2013, U.S. auto factory jobs dropped by a third while jobs in Mexico rose almost five-fold over the same period as lower-wage production boomed.

Mexico now accounts for 20 percent of all vehicle production in North America and has attracted more than $24 billion in auto investment since 2010, according to the Ann Arbor-based Center for Automotive Research.

Based on current investment plans, Mexico’s auto production capacity will grow by another 50 percent over the next five years, the center, which draws funding from the auto industry, estimates.

“Dismantling NAFTA at this point would be pretty hard to do,” said Kristin Dziczek, director of industry, labor and economics at the center.

Recent pledges by GM and Ford to build new models at U.S. factories are likely to generate a limited new jobs, far short of the industry revival Trump promised on the stump.

“After we win, I’m going to be coming back to Michigan a lot. I’m going to be coming back every time we open a new factory or a new automobile plant, and we will do it and we will do lot of expansion,” Trump said in Michigan on Tuesday in his last speech of the campaign.

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