President Trump may have campaigned on “Make America Great Again” and “Buy American,” but when it comes to vehicles, “Made in Mexico” is more ubiquitous at American car lots. Thanks to the outsourcing of sport-utility vehicles to Mexican factors, the production of light vehicles in Mexico increased 16% year-over-year in the first six months of 2017. Meanwhile, lukewarm sales of sedans weighed on production in the U.S. and Canada.
This kind of traction runs counter to what the Trump administration vowed with regards to slowing car and truck imports–in particular, with products coming from Mexico.
One in five cars but in the North American Free Trade Agreement (NAFTA) comes from Mexico, including new products from General Motors Company (NYSE:GM) and Fiat Chrysler Au Rg (NYSE:FCAU). This represents an increase over the financial crisis, when U.S. cars received billions in payouts designed to keep domestic automakers afloat and preserve U.S. jobs.
Since Donald Trump became president, U.S. automakers have committed to a number of key initiatives, including a move by Ford Motor Company (NYSE:F) to cancel an assembly plant being built in Mexico and investing some of that money into a plant in Michigan in order to create jobs.
Because of Trump’s proposed pro-business, tax reform policies (which seem more imminent now that the GOP Obamacare repeal bill failed), some automakers have said they will invest billions to create U.S. jobs in the coming years.
Unlike health care, which Republicans are divided on, tax cuts are an issue they are passionate about. The first real test to Trump’s “Made in America” pledge will come this August, when Washington opens talks with Canada and Mexico regarding overhauling NAFTA. What’s more, the auto industry is expected to be a major negotiating point.
And Trump will have plenty to discuss if he wants to live up to his campaign trail promises. Trump has proposed a border tax on imported cars and trucks, but some have said that will simply result in higher prices for American consumers.
During the first six months of 2016, U.S. light vehicle manufacturing slipped five percent year-over-year as automakers eliminated jobs or significantly increased downtime in response to the slowdown in demand for once-popular sedans.
When oil prices were above $100.00 per barrel, more and more Americans were turning to smaller cars and sedans. This was a boon to the U.S. auto industry, as a big portion of the country’s manufacturing footprint is dedicated to family cars and compact cars.
Now that oil prices are below $50.00 per barrel and are expected to stay in that range for the foreseeable future, sport-utility vehicles are growing in popularity and sedans are losing their lustre.
At a time when many U.S. and Canadian plants are cutting production (which has resulted in numerous layoffs) General Motors, Fiat Chrysler, Nissan Motor Co Ltd, and Volkswagen AG are scheduling significantly more light-truck production in Mexico.
Fiat Chrysler has moved production of its “Jeep Compass” to a plant in Mexico from one in the U.S. and Volkswagen’s luxury “Audi Q5 SUV” will now have a “Made in Mexico” stamp on it.
Meanwhile, Daimler AG and Nissan will be opening a new joint plant in Mexico later this year and Bayerische Motoren Werke AG (BMW) has a new plant opening south of the border in 2019.
“More U.S. Cars Are Being Made in Mexico,” The Wall Street Journal, July 25, 2017.
“More U.S. cars are now made in Mexico,” MarketWatch, July 25, 2017.