Tuesday, January 17, 2017

Trump and the carmakers

The president-elect’s critical tweets are causing havoc in the US auto industry, but who will suffer most?

“It must seem to Donald Trump that
reversing globalisation is easy-peasy,”
said The Economist. Before he has even
been inaugurated, “contrite firms are
queuing up to invest in America”.
Following months of barbs from the
president-elect, Ford last week cancelled
a $1.6bn new plant for small cars in
Mexico and instead pledged to create
700 new jobs in Michigan – padding the
announcement with praise for Trump
for “improving the business climate in
America”. Next in the line of fire is the
US’s largest carmaker, General Motors,
which plans to invest $5bn in Mexico
over six years. “Make in USA or pay big
border tax!” tweeted Trump. CEO Mary
Barra is holding firm. But for how much
longer? All it has taken to change the climate “is some harsh
words, the odd tax handout and a few casual threats”.
If Trump goes ahead with his threat to retool the North American
Free Trade Agreement and slap a punitive 35% tariff on imports
to the US, it will be Mexico that suffers most, said the FT. The
country’s blossoming car industry is “heavily reliant” on access to
US and Canadian markets, which account for 82% of its exports.
Yet America’s carmakers are also in a bind, said The New York
Times. Most have sizeable manufacturing operations in Mexico
that are an integral part of their global operations. In some ways,
the advent of Trump has been good for
business. Shares in Fiat Chrysler – the
Italian-American firm run by Sergio
Marchionne – have “sped ahead by
almost 50% since the day before the US
election”, said Antony Currie on Reuters
Breakingviews.com. Other carmakers
have notched up 20% gains. The rally is
being stoked by hopes that Trump will
cut corporate taxes and drive a boom,
spurring sales of the “chunky” vehicles
that appeal to US motorists when fuel
prices are relatively low.
Ford’s capitulation is a sign that “the
last thing any CEO wants is a slanging
match” with the president-elect, said
Philip Delves Broughton in the FT. But
the problem for US firms is figuring out “which Donald Trump to
believe”. Is it the taunting champion of the “grizzled Michigan
panel beater”, or the man who has stuffed his Strategic and Policy
forum with CEOs from blue-chip companies that have all thrived
on free trade? Ford boss Mark Fields and others are playing a
long game. They think that “if they give a little now and let the
president-elect trumpet his victories over the demon ‘big
business’”, they can extract favourable concessions down the line.
For the moment, Trump has America’s CEOs exactly where he
wants them: “wide-eyed at the rewards to come and terrified that
the next 140 characters will be about them”.

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