Automakers, Already Taking a Hit From Trump's Mexican Tariff Threat, Worry the Pain Has Only Just Begun
The profit-focused appeal of building vehicles in low-cost jurisdictions propelled many automakers to boost manufacturing capacity in America’s southern neighbor — a decision that now haunts them.
After President Donald Trump issued a Thursday statement declaring his administration would levy a 5 percent tariff on all Mexican-made goods starting June 10th, some $17 billion in market value evaporated from top automakers the following day. Ford, General Motors, and Fiat Chrysler all saw their share prices tumble. Should Trump follow through on his promise of an escalating tariff (a threat designed to stem illegal migration into the U.S.), the pain felt by both companies and their customers will be extreme.
Naturally, the industry is pushing back the best it can.
Models built south of the border are too numerous to list, but include regular and crew cab versions of the new-for-2019 Chevrolet Silverado and GMC Sierra, the Volkswagen Jetta and Toyota Tacoma, Chevrolet’s new Blazer, and Ram’s redesigned HD models.
A $1 billion BMW plant scheduled to open next week builds the next-generation 3 Series — a crucial model for Bimmer, and one with no shortage of similarly priced competition.
% of U.S.-sold vehicles assembled in Mexico (2019):
Volkswagen Group: 46.5%
Source: @LMCAutomotive
— Nathan Bomey (@NathanBomey) May 31, 2019
While the above list doesn’t show it, Mazda also produces U.S.-bound vehicles in Mexico. Honda, too.
In a statement, the White House said tariffs on Mexican goods would rise to 10 percent on July 1st if nothing is done to seal the border for illegal migrants, with the levy rising to 25 percent by October.
According to Bloomberg, Juergen Pieper, head of automotive research at Bankhaus Metzler, said BMW plans to slow the increase in output from its Mexican facility in response to the looming tariff. Once up to speed, the San Luis Potosi plant is expected to account for one-fifth of North American BMW production.
Deutsche Bank auto analyst Emmanuel Rosner claims a 25 percent tariff would cost the industry over $86 billion annually.
Mexico’s president, Andres Manuel Lopez Obrador, urged calm on Friday. In a statement to media reported by Reuters, Lopez Obrador said, “I tell all Mexicans to have faith, we will overcome this attitude of the U.S. government, they will make rectifications because the Mexican people don’t deserve to be treated in the way being attempted.”
Trump’s proposed tariffs earned a swift rebuke from the U.S. Chamber of Commerce, with Neil Bradley, the group’s executive vice president and chief policy officer, telling reporters, “We have no choice but to pursue every option available to push back.”
Nor are industry groups happy about the development. Jay Timmons, president of the National Association of Manufacturers, said the tariffs “would have devastating consequences on manufacturers in America and on American consumers.”
David Schwietert, interim head of the Alliance of Automobile Manufacturers, said in a statement, “Any barrier to the flow of commerce across the U.S.-Mexico border will have a cascading effect – harming U.S. consumers, threatening American jobs and investment.”
[Image: Fiat Chrysler Automobiles]
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Every time I think we've hit the bottom of the barrel around here you guys go find a new and deeper barrel.
I am not a Trump supporter (surprise), however I do agree that national borders should be 'secure', and that first world, democratic nations should not enter into 'free trade' agreements with autocracies, dictatorships and 3rd world nations. However corporations have no loyalty to a nation. Their sole loyalty is to profit. So the corporations will always lobby to increase their profitability. Marx predicted globalization and free trade over 150 years ago. And unfortunately corporations have the funds to 'influence' politicians. And thanks to lobby groups including the NRA, this will not end. Tariffs do cost the consumer, not the nation facing tariffs. Western Canadians denounced the tariffs that Canada had for over a century because they believed/knew that these tariffs meant they paid more for finished goods, and favoured Eastern Canadian manufacturers. If the USA wished to 'secure' it southern border it needs to enact some programs that the POTUS has not mentioned: 1) Decriminalize cannabis and possibly other drugs, thus taking them out of the control of gangs/cartels. 2) Incarcerate anyone found guilty of employing illegals. No exceptions. In 2005 this would have meant the senior executives of Wal-Mart which instead paid an $11 million fine for employing hundreds of 'illegal immigrants' as night cleaners. 3) Assist Mexico in securing its own southern border. Thus preventing the influx of refugees from Central America. 4) Stop the posturing and preening and once again become a trusted ally/partner with other 'western' style democracies. This will allow a united front against Chinese economic aggression. 5) Help to reduce/end the dependency on petroleum. This will curtail the income flowing into the Middle East and therefore reduce the funding for radical Islamization. 6) Build better vehicles in North America. It has been demonstrated that unionized North American workers can do a good job building reliable vehicles, in a cost effective manner if given properly designed and engineered vehicles. Oshawa won multiple quality awards yet those workers are still losing their jobs.