Published 11:46 a.m. ET Oct. 24, 2017
Washington — The rift between automakers and President Donald Trump’s administration is widening.
Groups that lobby in Washington for Detroit’s manufacturers and their foreign-based counterparts, as well as parts manufacturers and dealerships, are banding together to fight Trump’s proposed changes to the North American Free Trade Agreement with Canada and Mexico.
“This industry is winning with NAFTA,” John Bozzella, CEO of the Association of Global Automakers that represents foreign-based manufacturers, said in an interview with The Detroit News. “The auto industry is leading a manufacturing resurgence in this country and we ought to recognize what the cause of that is. We are making more 1 million more vehicles in the U.S. now than we were before NAFTA.”
Trump made a show of reaching out to automakers early in his term by pledging to focus on boosting manufacturing jobs — in part by renegotiating NAFTA, enacted in 1994 to create a free-trade zone between the U.S., Mexico and Canada. Trump brought CEOs from Detroit automakers to Washington for a White House meeting in his first weeks in office, displaying rare presidential interest in an industry frequently overlooked in the nation’s capital.
But U.S. negotiators have proposed increasing the minimum percentage a car’s parts must be made in one of the three countries — to 85 percent from 62.5 percent — in order to escape tariffs when it is imported to America. And they want to require that 50 percent of parts must come from the U.S.
Canadian and Mexican officials have so far rejected what they see as a hardline proposal, and the time frame for resolving differences has been pushed back into 2018. The next round of NAFTA talks will take place in Mexico on Nov. 17-21.
Bozzella stressed that his and other auto industry groups are not declaring war on the Trump administration. But he acknowledged they are putting on a rare unified front against the president’s most high-profile trade policies, despite earlier hopes of establishing a friendly relationship between automakers and Washington under Trump.
“We support modernization of NAFTA,” he said, noting that the current provisions of the trade deal are 23 years old and worth taking a look at now.
Bozzella added that the auto industry’s unity against the changes that have been proposed by the Trump administration shows “how central NAFTA has been to the resurgence of the industry. The industry’s success in the U.S. tells us this agreement is working.”
The auto industry still has hopes for favorable regulations from the Trump administration in other areas like controversial gas mileage rules. But it is banding together in a bid to save NAFTA, an apparent rebuke to the president and his policies.
Matt Blunt, president of the American Automotive Policy Council, which lobbies for Ford Motor Co., General Motors Co. and Fiat Chrysler Automobiles, said automakers would be forced to pay about $10 billion in tariffs they are currently able to avoid by law if the NAFTA deal falls apart.
“That’s a $10 billion tax we don’t have to pay today that we suddenly would have to begin paying,” Blunt said.
The AAPC has teamed up with the Alliance of Automobile Manufacturers, which represents foreign and domestic manufacturers and the Association of Global Automakers, which represents international carmakers, to form a coalition called “Driving American Jobs” to fight the Trump administration’s proposed NAFTA changes. The coalition also includes the American International Automobile Dealers Association and the Motor and Equipment Manufacturers Association.
The groups said Tuesday their members “agree that the future of the American automotive industry and its workers depends on trade.” They added that “NAFTA enhances the United States’ global competitiveness through the elimination of tariffs and other barriers to trade and investment.”
Jennifer Thomas, vice president of federal affairs at the Washington-based Alliance of Automobile Manufacturers, which lobbies for most major automakers — domestic and foreign — said the Trump administration’s proposals for changing the percentages of domestic parts that are required for automakers could harm the auto industry as much as pulling out of the deal completely.
“NAFTA with unworkable rules of origin can be just as bad as no NAFTA,” she said.
Thomas added that Canada and Mexico could potentially respond to the Trump administration’s demands for higher U.S. percentages of auto parts with local content rules of their own.
Michelle Krebs, senior analyst for Autotrader, said automakers have decided they likely will be more effective in combating the Trump administration’s NAFTA proposals if they are unified.
“Obviously, they see strength in numbers, banding together to let the Trump Administration know of their concerns, most notably that some of the proposed changes in NAFTA will have the opposite intended effect, not creating job but costing jobs.”
On the campaign trail, Trump said he would end the trade pact with Canada and Mexico and slap a 10 percent to 35 percent tariff on vehicles and parts made in Mexico that are imported into the U.S. if NAFTA renegotiation is not a success. That could add $5,000 to $15,000 to the price of a car. Some vehicles assembled by American companies in Canada or Mexico could also be hit with import tariffs.
Trump has threatened recently to withdraw completely from the deal.
Cody Lusk, president of the American International Automobile Dealers Association, said dealerships are equally at risk in the high-profile NAFTA talks.
“If you do away with NAFTA, that reinstitutes a 2.5 percent tariff for cars and 25 percent tariff for pick-ups,” Lusk said in an interview with The News. If automakers are forced to pay higher tariffs to import cars, “my guys aren’t going to be able to sell them at a great price.”
Ann Wilson, senior vice president government affairs of the Motor & Equipment Manufacturers Association added: “Changes in rules of origin will impact suppliers in a more immediate way than it will for some global manufacturers. If you don’t have a global footprint, there’s nowhere for you to move to.”