On this historic day, we have just sworn in the 45th President of the United States. It’s both terrifying and confusing, as no one is quite sure how the next four years are going to shake out. In fact, a whole swath of the population is rather perturbed at the general thought of what a Trump presidency means for the future of the United States. Those concerns largely stem from Trump’s use of social media and the unpredictable twitter rants. During a recent two-week long rant, he’s been after the automakers who not only do business in the U.S. but who also manufacture here. It’s a strange target for the former reality TV show star, but it could affect the way that a number of major manufacturers do business in the United States and ultimately it will affect you as a buyer and seller.
It all started a few weeks ago when Trump went after Ford for producing some of its cars in Mexico. Shortly after he tweeted “Make in U.S.A. or pay big border tax!", Ford announced plans to move production to Michigan. That plant in Mexico? It was going to cost $1.6 billion to build and now it won’t happen, at least very partially, as Ford says, because of Trump. How many jobs did it bring “back” to the United States? Just 700. Ford said that they decided to do it as a “vote of confidence” in Trump but also because, Ford says, its small car sales were declining in North America. Ford also says that it was on the table to happen, regardless of what Trump tweeted. They were planning to shift the production to an existing Mexico plant and expand operations in Michigan, anyway.
Fast forward to a few days later when, during the Detroit Auto Show, Trump went after Toyota. He threatened the company on Twitter, saying “Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax.” As the Washington Post points out, however, he got his facts totally wrong. This is, somehow, not a surprise when it comes from the guy who appears to rule from the barest minimum of facts and likes to stir up controversy as if he’s still running the boardroom in The Apprentice. Toyota has actually had a manufacturing plant in Baja for the last 14 years and as this story from the Los Angeles Times points out, Trump had his facts wrong. Toyota is talking about building a plant in Central Mexico in 2019.
Next, our president, tweeted about Fiat-Chrysler’s move to invest in their Michigan and Ohio plants. As this Bloomberg story points out, the plans were already in place well before Trump came into office, but hey, who cares about facts, right?
Most recently Trump has started going after German automakers like BMW and Mercedes-Benz. Both companies build a big portion of their vehicles here and send them elsewhere, but Trump, in his usual style, continues to ignore the facts. This past weekend he went to Twitter again to say “Car companies and others, if they want to do business in our country, have to start making things here again. WIN!”
As the Los Angeles Times points out, Trump is all about Trump and his brand. That includes pumping any sort of plans that automakers both domestic and foreign have had in the pipeline for years, for some sort of perceived public relations bump.
Here’s the reality though: If you know anything about how corporate culture works, you know that it can take as long as 3 to 5 years, on average, for a large, multinational company to make investments in new locations and shift production. As Mary Barra, the head of GM put it in the LA Times, “This is a long-lead business with highly capital-intensive investments — decisions that were made two, three and four years ago.”
Additionally, the cost of suddenly cancelling plans to build plants or shift production, is astronomical. We aren’t talking chump change to the automakers here, we are talking millions if not billions of dollars in losses. Making changes like that to play in the U.S. market would cause automakers a lot of pain, and it would significantly impact the U.S. jobs market, something Trump says he wants to protect. As CNNMoney points out, Trump would have to take credit for the negative impact, too.
So what does all this posturing and posing mean for the auto manufacturers, and, ultimately, you? To be honest, it’s unclear at this point. It’s not likely that Trump alone will be able to impose his threatened double-digit tariffs on automakers near and far. That responsibility would fall to Congress, and it’s a bit of a crapshoot. If the current administration does succeed in doing more than throwing fireballs at automakers, it means that any vehicle made outside the country could cost customers a whole lot more. There’s also the big possibility, as Business Insider points out, that the jobs picture and economy as a whole could become a whole lot less stable as a result of just this one thing.
Trump’s threats, should they come true, could also mean that the future of electric cars is in trouble because they are already more expensive than their gasoline counterparts. Oh, and you should probably prepare yourself for the likely interest rate hike that will come regardless of whether or not Trump gets his way. With employment in the states at or near full, the Fed is likely to raise rates to keep inflation at bay. That means everything is going to get more expensive. If you want to know what you should do about the very real coming rate hike, check out our recent story here. Oh, and if Trump succeeds in raising tariffs on automakers, get ready to see a spike in costs for new-to-you cars on the used car market- particularly on models that are not made in the U.S.
Twitter temper tantrums aside, it’s clear that the president will have a very real impact on the car industry, the economy, and, ultimately, your pocket book.
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