I know I recently argued that we should ignore Trump’s tweets about the auto industry, but hear me out.
On Thursday, Trump rehashed an attack he made earlier this week on GM, this time threatening Toyota. Business Insider’s Bob Bryan had the report.
“Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for US. NO WAY!”the president-elect tweeted. “Build plant in US or pay big border tax.”
Toyota already builds the Corolla in the US, at a plant in Mississippi, a so-called “right to work” non-union state, which, like many states in the South, is where foreign automakers have based their US manufacturing for decades.
The planned Mexico plant would shift Corolla production not from the US, but from Canada.
And here’s the maddening thing that nobody around Trump seems to be telling him: Toyota can no longer afford to profitably expand Corolla production in the US. Building a new factory to assemble Corollas would likely mean tenuous, even speculative, new jobs that would be created to construct a vehicle whose sales, while considerable, are declining in the US relative to crossovers and SUVs.
Customers want SUVs, not cars
Pointedly, if Toyota had done nothing, the Corollas in question would still have been imported from Canada – although to be honest I’m not sure that any of the compact sedans had ever crossed the borders of our neighbor to the north because the car has sold well for Toyota there.
In fact, Toyota, like Ford – another carmaker trying to realign its North American production with consumer demand and shifting small-car production to Mexico – isn’t planning to shutter its plant in Ontario; rather, it wants to use the factory and its workers to build the more profitable vehicles that consumers are buying.
I guess if Trump really wanted to scare Toyota, he would have tweeted that the company faced a border tax if it dared to build more profitable SUVs and crossovers in Ontario. But then he would have been showing an understanding of the industry he attacked, rather than just putting “Toyota,” “US” and “tax” in a tweet.
Go to school
At some point in the next week or so, it would be helpful if one of Trump’s advisors explained that the auto market in the US consists of segments, and that carmakers here have traditionally struggled to make small cars as profitable as larger ones.
The Japanese automakers have done better than most – the Corolla was the sixth best-selling vehicle in the US in 2016 – and Detroit has always been impressed with how Honda, Toyota, Nissan, and others can get a good margin on small cars.
But the past five years have seen consumers shifting their preferences toward crossovers and SUVs, and automakers want to adjust their manufacturing in North America to meet that demand.
That said, they don’t want to kill off small-car production. A gas-price spike could bring customers back to these vehicles, and in any case automakers can export small cars to markets where they continue to be popular.
There’s a very good chance that the Trump presidency will be good for the auto industry. But for now, Trump keeps making the same mistake about the car business over and over again.