The Auto Manufacturing Sector Was Threatened By Trump As It Could Weigh Over The Growth Of The Sector
Automakers from across the globe expect a victory party ahead of the Automotive Logistics meeting held in Mexico City last week, but were later disappointed after Donald Trump won the U.S. presidency.
The auto manufacturing sector was reportedly threatened by Trump at trade policies, citing it could weigh over the two decades growth of the sector.
Frustrations started with Trump’s tweets after he attacked Ford Motor Company (NYSE:F) and General Motors (NYSE:GM) with the automakers’ exportation of small cars from Mexico to the U.S.
Meanwhile, an executive order was issued by Trump on Jan. 25, putting bars on the southern border, followed by the president’s press secretary, which ordered automakers to pay for a 20 percent tax on Mexican imports.
Mexico produced a total of 3.5 million light vehicles in 2016, up by 67 percent from an earlier reading of 2.1 million in 2008, according to the Mexican Automotive Industry Association.
The country became the fourth-largest car exporter across the world, after Germany, Japan and South Korea.
"We didn't expect that this would happen," Omar Mendoza Vega, a vehicle logistics manager at Audi, said of the sudden chill in the U.S.-Mexico trade climate.
With more than four years of planning and construction, Audi began producing SUVs at a $1.3 billion plant located in San Jose Chiapa in September. Once the facility gets massive operations, it will serve as the only location producing the Q5 model throughout the world.
"I am happy that we began moving units to the U.S., but I am not sure if we will continue to be able to. Was it worth spending all of this effort?" Mendoza Vega said.
Who Will Gain in Auto Industry?
Given a roller-coaster ride on the recent financial year for the automotive industry, the year’s demand momentum turned into positive, but the industry still went under pressure.
Despite greater expectations in the Automotive industry for this year’s Union budget, there were still no direct measures seen. However, several structural initiatives were reported to benefit from the industry.
The Rs 10 lakh crore increase on farm credit will give a huge impact on the tractor segment, along with the two-wheeler segment as a result of a better-than-expected credit flow to the farming and rural sectors.
Subsequently, the rural investment outlay has also been increased by about 24% to Rs 1.87 lakh crore, in which the farm equipment segment will see an upbeat demand.
Conclusion
Given these uncertainties brought by Trump’s orders, which weighs on the automotive industry, it is likely that some of the automaker would still benefit as aggressive growth targets that will boost capital expenditure on infrastructure would send housing affordable.