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Global auto leaders urge Trump administration to end trade turmoil

Stock MarketsJan 14, 2019 09:23PM ET
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© Reuters. FILE PHOTO: Ford executives at the North American International Auto Show in Detroit, Michigan

By Ben Klayman and David Shepardson

DETROIT (Reuters) - Auto executives gathered in Detroit on Monday called on the Trump administration and Congress to resolve trade disputes, and end the government shutdown, saying political uncertainty is costing the industry.

U.S. trade officials are negotiating a new deal with China in hopes of avoiding new tariffs, while a new regional trade agreement with Canada and Mexico still needs congressional approval. Automakers producing vehicles in the United States are contending with U.S. steel and aluminum prices driven higher by Trump administration tariffs.

Fiat Chrysler Automobiles NV (MI:FCHA) (N:FCAU) Chief Executive Mike Manley told reporters at the Detroit auto show on Monday that U.S. metals tariffs will raise the automaker's 2019 costs by $300 million to $350 million, or about $135 to $160 a vehicle, based on the automaker's 2018 U.S. sales.

Toyota Motor Corp's (T:7203) executive vice president for North American sales, Bob Carter, said the company has had to raise prices three times because of higher tariff costs - even though 96 percent of steel in Toyota U.S. vehicles is from U.S. steel plants. The tariffs boosted industry vehicles prices by about $600 on average, he estimated.

General Motors Co (N:GM) and Ford Motor Co (N:F) are also taking financial hits from the U.S. steel and aluminum tariffs.

"Those are headwinds," GM President Mark Reuss told Reuters. "It's our job to run the business to offset those headwinds."

GM Chief Executive Mary Barra last Friday promised investors the company would boost 2019 profit despite tariff-related costs and investments in electric vehicles. She stuck to her plans to target five North American factories for closure and cut nearly 15,000 jobs overall.

About one-quarter of federal government operations have been shut down by a lack of funding since Dec. 22 after President Donald Trump demanded $5.7 billion this year from Congress for building a security wall on the southwest U.S. border.

Manley said the U.S. government shutdown is holding up certification of one of the company's new heavy duty pickup truck models. Those vehicles are among the company's most profitable products.

"The earlier it can be resolved, clearly the better," he said.

Concern in the auto industry about the uncertainty created by Trump's efforts to revamp trade and environmental policies is weighing more heavily as forecasters call for a slowdown in vehicle demand in the United States and China during 2019.

"There's a lot of balls in the air right now that are unresolved," Ford Executive Chairman Bill Ford Jr. told Reuters on the sidelines of the auto show. "Certainty is something we really desire because of our product lead times. We don't have that right now."

Ford said the automaker feels its opinions are being heard by U.S. Trade Representative Robert Lighthizer, but he has no idea when the various issues will be resolved.

U.S.-China trade tensions have forced Chinese automaker GAC to delay its planned entry to the U.S. market, Wang Qiujing, head of GAC's (SS:601238) research and development center, told Reuters on Monday. "We have postponed our launch until the first half of 2020," he said, adding that the timing will depend on the outcome of U.S.-China trade negotiations. If the current 25 percent U.S. tariff on Chinese-made vehicles continues, "the impact will be very significant," he said.

GAC has a large display at the Detroit auto show, and is hiring engineers and designers at three U.S. locations, including a new technical office in Detroit expected to employ about 30 people, Wang said.

Auto executives have welcomed the conclusion of a new version of the North American Free Trade Agreement, as the industry seeks certainty for rules that will govern automakers' long-term investment decisions in the region.

In the interest of greater certainty, they would like to see the U.S. Congress decide quickly on the updated agreement's fate.

"We just need it resolved," said Brian Smith, chief operating officer for Hyundai Motor Co (KS:005380) in North America, who added that the automaker needs clarity so it can adjust its supply chain as necessary. "It's been going on way too long."

U.S. officials are weighing so-called Section 232 national security tariffs on imported vehicles. That tariff would not hit U.S.-made models, but some analysts warn it could trigger a sales slump as prices for European and Asian-made models jump.

"The decline in volumes could be larger than a recession would produce," Jonathan Smoke, an economist with auto market information company Cox Automotive, said during a briefing on Sunday.

Volkswagen AG (DE:VOWG_p) CEO Herbert Diess on Monday announced the German automaker would invest $800 million in its Chattanooga, Tennessee, plant and add 1,000 jobs to build electric vehicles as it faces pressure from the Trump administration.

VW is worried the Trump administration will move ahead with new tariffs and hopes the new investments will help the German automaker avoid them. "We have strongly been encouraged to invest more, which we will do," said Diess, who met with Trump last month.

Global auto leaders urge Trump administration to end trade turmoil
 

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