Concerns about Trump Administration Drive Uncertainty in U.S. Auto Industry

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Researched by Industrial Info Resources (Sugar Land, Texas)--It is still too early to predict what effect, if any, Donald Trump's election will have on the U.S. auto industry. Sales already had begun to slow, as most analysts predicted they would, following a boom in recent years. But the election results could hasten the slowdown, depending on how they affect the confidence of car buyers and concerns about trade deals.

Many consumers and industry-watchers are concerned that, if enacted, Trump's campaign promises to build walls, renegotiate or ax trade deals, and impose high tariffs on automobiles imported to the U.S. would cause short-term sales declines and long-term implications for the global automotive industry. Fiat Chrysler Automobiles NV (NYSE:FCAU) (London, England) and General Motors Company (NYSE:GM) (Detroit, Michigan) saw their shares close lower following the election.

Efraim Levy, an analyst with CFRA Research (New York, New York), said that "even with some potential tariff costs to automakers, we believe GM and Ford will have time to flex production and regional sales to mitigate the impact."

Jody Fledderman, the president of Batesville Tool & Die Incorporated (Batesville, Indiana), which services Honda Motor Company Limited (NYSE:HMC) (Tokyo, Japan), Nissan Motor Company (Nishi-ku, Japan) and other clients on both sides of the border, is concerned with the auto industry's direction under a Trump administration and what effect it will have on his company.

During his campaign, Trump blamed unfair trade, in particular with Mexico and China, for the loss of millions of factory jobs. Trump vowed to renegotiate the North American Free Trade Agreement (NAFTA), which connects Canada, the U.S. and Mexico, and leave it if Mexico doesn't agree to improved terms for the U.S. But Fledderman said that such a change would be deeply complicated for the auto industry, because of the multilayered connections between U.S. and foreign suppliers and assembly plants.

Assembly plants have become engines for local economies across the U.S., as they tend to pay more than most factories.

Trump repeatedly criticized Ford Motor Company's (NYSE:F) (Detroit) plan to move assembly of its Focus small-car brand to Mexico, vowing to impose a steep tariff on the car if Ford follows through. The parts that make up a car or truck, from bolts to motor blocks, window lifts to oil filters, account for two-thirds of its value, according to the Motor & Equipment Manufacturers Association.

"This industry, particularly in North America, has integrated a lot," said Thomas Klier, an economist at the Federal Reserve Bank of Chicago. Such integration poses a challenge for anyone wanting to buy an entirely U.S.-made vehicle.

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