Axon's Automotive Anorak: Could Trump's plan backfire on America's big three?

Now, I’m not going to get drawn into politics and my own personal thoughts on Trump here, (quite probably shared with your own views), but his early ‘interference’ with the American automobile industry, before he’s even installed himself into the White House, are unprecedented, with potentially alarming consequences for the domestic US carmakers.

As you are probably aware, via some misguided Tweets, Trump is proposing to add a huge 35 percent taxation tariff to any Mexican-built vehicles imported into the United States, in the questionable belief that this action will not only help to protect the jobs of existing American auto workers but potentially create new positions in this vital employment sector as well.

America’s third-largest vehicle maker, Fiat Chrysler Automobiles (FCA), seems to have already taken heed of Trump’s thinking, announcing a $1billion investment earlier this week in two US-based production facilities in Michigan and Ohio, with an extra 2,000 new jobs being created to build three brand new future Jeep models. FCA already has established manufacturing facilities in Mexico, where the distinctive but unpleasant Chrysler PT Cruiser was exclusively made. Today FCA Mexico builds Fiat, Chrysler, and Dodge-branded vehicles, many of these aimed at the American market, so with a 35 percent import levy price hike, its USA sales and market share look set to take a thumping downward hit.

Post-Trump’s announcements, USA’s number two vehicle group Ford is now reconsidering its Mexican production plans, saying that it will transfer manufacturing to the US. 

General Motors (GM) - America’s largest automotive empire - is set to defy Trump and continue building and exporting its mid-range Mexican-made models to the USA, so ultimately the price positioning and competitiveness of the General’s high-volume-selling mainstream family models will be under threat, which has to be a major concern to GM’s sharp-suited Detroit executives. Toyota is also carefully considering its next move…

BMW has been planning a new purpose-built production facility in Mexico for some time now, so it used the first Press Day of the 2017 NAIS Detroit Auto Show to trump Trump and announce that it will not be deviating from its plans, and will go ahead with the build.

Other established non-American vehicle brands, including Nissan, Mazda, and Kia, also produce cars in Mexico for export to the USA, so their market competitiveness also stands to be majorly compromised.

Based on FCA’s and Ford’s decision to build in America, rather than take advantage of the cheaper labour rates in Mexico, at first glance Trump’s strategy looks to be a winner, creating inward investment and new jobs in the USA.

This should be good news in the short term, but on a longer term basis, the outlook looks decidedly less rosy for the domestic American car brands, as the value of their products and profit margins will suffer against the non-Mexican imports that Trump is not planning to apply a whopping tax levy to, such as Hyundai, Mini, Mitsubishi, Audi, and many others…

America’s domestic carmakers have been struggling against better built and more desirable foreign brands for decades now. I hope I’m wrong, but Trump’s foolhardy decision to undermine the competitiveness of the USA car makers might just be the final straw for Detroit’s Big Three.