Sergio Marchionne told it like it was. Shortly before his death I asked the FCA CEO whether Donald Trump’s trade wars and Britain’s turmoil over Brexit—its departure from the European Union, one of the world’s largest trade blocs—posed a threat to his company’s business. He paused a moment, then powered ahead: “These are strange times,” he agreed. “We have never been here before.”
Indeed. Globalists are out. Economic nationalists are in. It’s a bad time to be running an automaker. With everything from the smallest part to complete vehicles streaming ceaselessly across borders from factories all over the planet, the auto industry is the globalists’ poster child. It generates billions in revenue, employs millions, and offers consumers an unprecedented choice. But not everyone believes that’s a good thing.
“Build them here!” tweeted President Donald Trump as he threatened tariffs on imported cars and castigated Harley-Davidson for plans to move some motorcycle production out of the U.S. to avoid retaliatory taxes from the European Union. “F**k business,” former British Foreign Secretary Boris Johnson reportedly said after BMW warned that, without a guarantee of tariff-free movement of cars and parts across Britain’s border, Brexit would threaten the viability of its U.K. manufacturing operations.
What alarms auto industry executives is these strident voices are not coming from a radical left-wing fringe but from politicians belonging to parties they have long regarded as business-friendly. However, those parties are now in thrall to voters angered by wage stagnation and declines in social services—voters for whom life in the globalized economy has not improved their personal pocketbooks. The awkward problem for the auto industry is those voters have a point.
Research by the Hamilton Project at the Brookings Institution has revealed that, adjusted for inflation, worker wages in the U.S. have only grown by 10 percent since 1973. Over the same period, the inflation-adjusted price of a base Mustang has increased more than 60 percent. It’s a similar story in Britain, where a base Ford Mondeo costs 50 percent more than the inflation-adjusted price of a 1973 Ford Cortina. Of course, today’s Mustangs and Mondeos are in every way far better cars than their predecessors. But for average wage earners, they’re not as good a deal as they used to be.
Anti-globalization rhetoric is seductive. “All we want to do is be able to sell as many Fords into Germany as they sell BMWs here,” said Peter Navarro, one of Trump’s key trade advisers.
That’s oversimplifying things a bit. Yes, last year BMW sold more vehicles in the U.S. than Ford sold in Germany—305,685 versus 246,589. And Navarro correctly points out that American-made cars shipped to the European Union are taxed at a higher rate than European cars shipped to the U.S. But the auto industry’s globalist business model punctures the economic nationalist argument that fixing the tariff imbalance will create more jobs for highly paid American workers: Apart from the Mustang, none of the 14 other Ford models sold in Germany is actually made in the U.S. (In case you’re wondering, Germans last year bought 5,742 Mustangs, more than anyone else in Europe.)
Today’s globalized auto industry is not a zero-sum game. When Trump blasted European automakers, he ignored the fact that they already employ more than 50,000 American workers who build more than 800,000 vehicles a year—in America. BMW’s largest factory in the world is located in South Carolina, used for vehicles sold in America and exported elsewhere.
When Navarro huffed “smoke and mirrors” after GM boss Mary Barra bluntly warned protectionist tariffs would shrink the company’s U.S. operations, he overlooked the fact that GM now sells more vehicles in China than anywhere else in the world.
Automakers are in for a rough ride as they deal with collateral damage from Trumpism and Brexit. “It’s going to cost us in capital, and we are going to become less efficient as we try and get out of this mess,” Marchionne said.
In short, start saving. Tariffs are a tax, and the cost will be passed on to the consumer. Toyota, for example, has said the price of a typical Camry will jump by about $1,800. Your next new car, truck, or SUV isn’t going to be more affordable. No matter where it’s made.
More from Angus MacKenzie:
- ePrix: Racing for the Future
- How Electric Vehicles Will Go Mainstream
- All Change: Are America’s Automakers Ready?
- End of the Road: Marking the Passing of the Australian Auto Industry
- Electric Warriors: Benz and BMW Take on the Future
The post Check Engine: A Globalized Industry Collides With National Politics – The Big Picture appeared first on Motor Trend.
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