Trump Loom Large As Auto Show Revs Up

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Trump Loom Large As Auto Show Revs Up


January 10, 2018

Washington — President Donald Trump is casting a long shadow over the Detroit auto show.

New models are being rolled out against a backdrop of uncertainty about the future of the North American Free Trade Agreement that has reshaped the industry over the past generation. Changes to NAFTA, or an outright U.S. withdrawal, could drastically change the way automakers do business.

Also hanging in the balance are stringent gas mileage rules that could impact models made after 2021. The Trump administration’s review of the rules is set to conclude by April. Automakers facing deadlines to produce fleets averaging over 50 miles per gallon by 2025 are hoping for relief from the mandate from a business-friendly administration.

Trump promised to be a business-friendly president, and he made automakers an early centerpiece of that strategy after winning several auto-dependent states in the Midwest during the 2016 presidential election. But since taking office, he has hectored automakers for building cars at factories that are located beyond U.S. shores, and his NAFTA proposals are aimed squarely at trade rules car manufacturers say they need to remain competitive globally.

The uncertainty makes it difficult to conduct long-term planning, said Paul D. Ryan, vice president of trade and competitiveness for the Washington-based Association of Global Automakers, which lobbies for international automakers.

“The automotive industry is a highly capital-intensive, long lead-time industry,” he said. “Having the policy climate a little bit more stable so investment decisions can be made is very important.”

Under controversial NAFTA changes proposed by the Trump administration, a Chrysler Pacifica minivan built in Windsor could be hit by tariffs when trucked across the Detroit River. U.S. negotiators have proposed increasing the minimum percentage of parts that must be made in the U.S., Canada or Mexico — from the current 62.5 percent to 85 percent — in order to escape tariffs when imported to this country.

And American negotiators want to require that 50 percent of parts must come from the United States. That would mean future models of the Canadian-built Pacifica could be hit by import taxes when sent here. Only 44 percent of the components in the Pacifica originate in the U.S., according to an American University study.

Ryan said automakers support the Trump administration’s efforts to “modernize” NAFTA, but said proposals that have emerged about rules of origin are “unworkable.”

“Our view is the current rules of origin works really well,” he said. “It’s the highest rule-of-origin of any trade agreement, and it’s helped the U.S. automobile industry grow and be competitive.”

Foreign-owned automakers may be forced to re-evaluate previous decisions to build cars in the U.S. if the Trump administration succeeds in dramatically rewriting NAFTA — or pulls out altogether.

“The question about where to place new investment dollars would have to be looked at by all manufacturers,” he said. “If the cost of complying with NAFTA extends the benefits, which is basically duty-free treatment on parts and supplies, they’ll have to figure out what’s the best way for them to reach their American customers and their customers outside the U.S.”

General Motors Co. CEO Mary Barra expressed optimism in December that the auto industry’s concerns about NAFTA are getting through to the Trump administration, noting that Vice President Mike Pence had met with her and other Detroit auto company leaders in Washington.

“We thought it was very positive that Vice President Pence held the meeting with the automakers because if you look at the administration, they have been pretty clear about wanting to increase jobs,” she said at an Automotive Press Association event in Detroit. “So we’re able to have really substantive conversations where we talk about different aspects and how that will impact jobs. And recognizing we’re … a capital-intensive business — and so I remain hopeful that all the information we’re providing that is being taken into consideration.”

Barra said GM agrees that “NAFTA should be modernized after almost 25 years, but in a way that doesn’t have unintended consequences. So that’s the communication that we’re having. And it’s been productive so far.”

CAFE impact

Then there’s the uncertainty about gas mileage rules for cars made after the 2020 model year.

Corporate Average Fuel Economy (CAFE) and greenhouse gas emission standards began taking effect with the 2017 model year. They call for ramping up from the current fleet-wide average of about 35 miles per gallon for cars and trucks, to an eventual goal of between 50 and 52.6 miles per gallon by 2025. The goal was revised down from an initial target of 54.5 miles per gallon.

The mileage rules were put in place in 2012 by former President Barack Obama’s administration, which argued the lofty target was achievable and popular with drivers who were weary of gas prices topping $4 per gallon at the time. Automakers have since argued the rules are too stringent. Drivers have demonstrated in recent years that they are less interested in fuel-efficient cars and electric vehicles with gas prices that are now around $2.50.

The mileage rules that cover the model years between 2021 and 2025 are currently under review by the Trump administration.

Wade Newton, director of communications at the Alliance of Automobile Manufacturers, which lobbies for U.S. automakers in Washington, said in an email that automakers are looking for the Trump administration to ensure “a robust, data-driven, and transparent mid-term evaluation to determine the feasibility of the future (greenhouse gas) emission standards.”

Important vacancy

Safety advocates have noted that the Trump administration has created uncertainty by leaving the position atop the National Highway Traffic Safety Administration vacant for a year. The White House has declined to comment on the president’s plans for filling the vacancy.

“Trump’s irresponsible failure to even nominate a NHTSA administrator clearly undercuts the agency’s ability to protect consumer safety,” said John Simpson, privacy project director at the Santa Monica, California-based Consumer Watchdog group. “He’s more preoccupied with undoing anything that can possibly be linked to the Obama administration than in any real policy of his own.”

Michelle Krebs, senior analyst for Autotrader, said automakers have proven to be resilient in the face of changes sought by Trump, who she called a “great disruptor.”

“We entered last year with a number of things where change has been in offing,” she said. “I know they would like to get NAFTA settled in particular, because that could be quite disruptive, depending on what they do.”

With regard to uncertainty about gas mileage rules, Krebs said automakers are “working toward a certain direction anyway, and they have to because of other markets besides the U.S. These are global automakers, and they are moving forward.”

[email protected]

(202) 662-8735

Twitter: @Keith_Laing

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