Business

In Trump era, US automakers seek balance between jobs, profits

President Trump met with the CEOs of three US automakers Tuesday, promising to cut regulation if they bring jobs back to the US. But that could prove costly for manufacturers. Where do they go from here?

Flanked by the General Motors chief executive Mary Barra (l.) and Fiat Chrysler chief Sergio Marchionne (r.), President Trump hosts a meeting with US auto industry leaders at the White House in Washington on Tuesday.
Kevin Lamarque/Reuters
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During the presidential election campaign, President Trump pledged to create new manufacturing jobs and bring other jobs back from overseas. It’s a proposal that won him blue-collar votes across the country – but American automakers may not be convinced.

On Tuesday, Mr. Trump met with the chief executives of US auto giants General Motors, Ford, and Fiat Chrysler. His goal: new auto manufacturing plants in the US. In exchange, he promised to reduce regulations that complicate the opening of new plants and scale back fuel efficiency requirements that push up manufacturing costs. The executives seemed to respond positively to Trump’s suggestions: General Motors CEO Mary Barra called the meeting “constructive,” while her Ford counterpart Mark Fields expressed “a lot of confidence” in Trump following the meeting.

The automakers’ enthusiasm, analysts say, may be more for show than a real expression of support for Trump’s proposed policies. They don't want to run afoul of the president and be targeted for future regulation or taxes. At the same time, building a new $1 billion factory may not be the right move for shareholders or the bottom line. A balance could be struck, industry analysts suggest, but it is unlikely to “bring back” jobs so much as create new ones.

“I can’t see them making any real changes,” explains David Vogel, a professor at the University of California, Berkeley’s Haas School of Business, in a phone interview with The Christian Science Monitor. “At the margin, they may do a few things.”

Economic changes and the increasing automation of car manufacturing have hit blue-collar workers, particularly in America's Rust Belt, hard. Though the US auto industry produced more cars last year than at any point in history, it employed between one-third and one-half the number of workers it did decades ago, Bloomberg reported. 

And fewer of those jobs were located in the US, a point highlighted by the Trump campaign. He took aim at trade agreements such as the North American Free Trade Agreement (NAFTA), which allow labor and goods to move across the world. Instead, Trump promised to raise trade barriers, which he said would keep jobs in the US.

Since his election, Trump has personally pushed hard on companies to get them to keep jobs in the US and pledging to raise import tariffs for companies that took jobs overseas.

This position of “negotiator-in-chief” is uncommon among recent US presidents, says Graham Wilson, a professor at Boston University who specializes in business-government relations. 

“To get so involved in the details of a private-sector decision is, I think, almost unprecedented in modern times,” he tells the Monitor, citing John F. Kennedy’s confrontation with the steel industry as probably the most recent example.

Since President Kennedy, Professor Wilson says, there has been a consensus that presidents do not get involved in business, these issues being better left to the market. That’s certainly the line that the Republican Party has espoused, he notes.

Trump’s business focus – some suggest that he sees himself primarily as a dealmaker – may be encouraging him to play a greater role in these negotiations. And the president’s personal involvement in companies’ business dealings may raise the stakes for auto companies, suggests Professor Vogel.

“I think companies are always risk-averse politically and they’d prefer not to have the president mad at them,” he explains. “[They] want to be in the president’s good graces.”

All three US automakers have released statements supporting Trump’s move to protect American jobs. Ford halted its plans for a new plant in Mexico, replacing it with one in Michigan, though chief executive Mark Fields told CNBC at the time that market forces were the main factor in the decision.

Ultimately, automakers’ decisions hinge on a long-term financial calculus, one that extends beyond any presidential administration, says Tom Kochan, a professor of work and employment research at the Massachusetts Institute of Technology (MIT), in an interview with the Monitor. As a result, they’re unlikely to be swayed by promises of relaxed regulation, or the threat of imposed tariffs.

“When an auto company makes a decision to invest the money in a new plant, they don’t make it on the basis of a tariff,” he says. “I don’t think that making noise about tariffs, or even imposing them, will have any substantial impact.”

These plants, Professor Kochan notes, cost an average of $1 billion to set up – they’re an investment of ten years or more. And basing a plant in the US requires paying salaries that are, according to Bloomberg, an average of six times higher than in Mexico for the life of the plant, at a time when manufacturers are already struggling to break even on their small cars, according to Forbes.

So decisions like Ford’s relocation won’t have been a response to presidential pressure, he says.

If Trump’s plans do have an impact, he says, it will be a negative one, causing automakers to lose ground in growing markets such as China and Europe.

“It will hurt domestic automobile producers [in terms of profits] more than it will help increase the number of American jobs,” Kochan says.

One area of Trump’s policy that could be profitable is reducing cars’ fuel economy requirements. Barclay’s analyst Brian Johnson estimated that automakers could save around $1,000 per car if they did not have to hit mile-per-gallon requirements, a saving that could support an additional 200,000 to 400,000 US jobs, according to Forbes. 

Customers may not be attached to fuel efficiency, Vogel suggests, so may continue to buy less fuel-efficient cars. But that could change as the price of gas rises again, notes Dan Welch, Solutions Fellow at the Center for Climate and Energy Solutions, in an email to the Monitor. Electric vehicle sales are also rising, he notes.

It may be possible to have both at once. Fuel economy technology is becoming cheaper, Mr. Welch writes, citing an EPA report.

“This means fuel economy standards could be met affordably and would save consumers money,” he explains.

The path to protecting US jobs in a global economy may not be as straightforward as it appears. Mark Perry, an economics professor at the University of Michigan, Flint, notes that saving jobs in one sector can cost jobs elsewhere, as well as raise prices on consumer goods.

“In the case of tariffs on Chinese tires [imposed between 2009 and 2011], it cost US consumers about $900,000 in higher prices for every US job saved in the domestic tire industry, and resulted in the loss of more than 3 jobs in the US economy (most retail) for every tire factory job saved,” he writes in an email to the Monitor.

If it no longer makes economic sense for companies to locate many of their manufacturing operations in the US, how can jobs in the sector be created? Kochan suggests looking to future technologies. Manufacturers are already locating their electric vehicle and autonomous car enterprises in the US, where engineers and designers can work closely together, Kochan explains. They’re not the traditional manufacturing jobs Trump may hope to create, but they may help revitalize cities across the Rust Belt over the next decade.

"To bring jobs back, we have to invest in the next generation of manufacturing," he says, "in electrical vehicles or driverless vehicles – here."