As executives meet at the leading US automotive trade show in Detroit following Trump’s attacks last week against GM and Toyota, carmakers which operate in Mexico are bracing themselves for hostility from President-elect Trump after he launched an attack on the US industry last week.
Japanese government officials have hit back against Trump’s criticism of Toyota, the country’s most powerful corporate name, which has caused reverberations across business in Japan. Meanwhile, Ford’s decision to abandon its Mexico plant plans, which it linked to being ‘a vote of confidence in Trump’, have sent shockwaves through the factory’s likely network of suppliers, many of which had made investments and already started to expand in anticipation.
Mexico’s economy ministry said, without naming Trump or any government, that it ‘categorically rejects any attempt to influence the investment decisions of companies on the basis of fear or threats’.
A Mexican academic has also claimed Ford will suffer from the consequences of the decision, as it grapples with higher salaries and taxes in the US. Trump’s outburst is believed to have either tipped the scales on Ford’s plans that were already under review due to falling small car sales in the US, or made for opportune timing to announce a decision Ford had already made. Ford’s announcement came on the same day as Trump threatened to slap a ‘big border tax’ on GM for importing its cars from Mexico.
Chief executives from top Japanese companies including Sony’s Kazuo Hirai and Nissan’s Carlos Ghosn have weighed in, in a move analysts fear could lead to a broader fallout in Japan-US trade relations.
‘Toyota is equivalent to Japan as a whole, so Mr Trump’s criticism could be interpreted as a message to the Japanese government,’ motor industry analyst at SBI Securities Koji Endo told The Financial Times. He expressed concerns about the impact of Trump on international relations when he officially becomes president on 20 January.
However, Trump is facing resistance from Republicans in Congress on his threats to impose a 35% tariff on companies that import cars into the US from Mexico.
Republican Speaker of the House of Representatives Paul Ryan said: ‘No, we’re not going to be raising tariffs […] We think tax reform is the better way of addressing imbalances, levelling the playing field without starting trade wars, without having the adverse effects that you get with protectionism or trade wars.’
Toyota is an unsurprising but ironic choice for Trump’s attacks given it is actually a latecomer compared to rivals in shifting production to Mexico, with only about 6% of its vehicles sold in the US built in Mexico. However, in 2015, the company announced plans for a new $1 billion (€0.95 billion) facility in Guanajuato to make Corolla compact cars, the second best-selling car in the US.
Almost every car manufacturer selling in the US operates plants in Mexico because of its low cost base, including Ford, Chrysler, Nissan, Volkswagen and Honda. Several manufacturers, including BMW, Daimler and Kia are building additional production capacity in the country.
Not far from the doomed Ford site, other major automotive players are in the midst of multi-million dollar investments, including GM. German carmaker BMW is assembling a $1billion plant, and a few miles from the Ford site Goodyear is busy building a $550m tyre factor.
Trump is taking a tough line against the automotive industry because Trump won the presidential election in large part thanks to states where the auto industry is strongest.
Mexico’s car industry has blossomed under the North American Free Trade Agreement (NAFTA) to become the seventh largest car manufacturer in the world. A developing country, which has enjoyed a 20-year boom, remains heavily dependent on the US market. In addition to lower wages and taxes, Mexico also benefits from having more free trade agreements than the US with 44 rather than 20, making it easier to sell cars around the world, which runs at odds with Trump's threats to scrap existing US free trade agreements including NAFTA and the Trans-Pacific Partnership.
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