You Auto Know Week in Review: October 20, 2017

You Auto Know 10/20/17

NAFTA Negotiations On Pause After Tense Fourth Round

Following the conclusion of the fourth round of NAFTA talks earlier this week, in which several controversial U.S. proposals were not received well by either NAFTA partner, the fifth round was postponed from the end of October until November 17. According to reports, there are several contentious issues on the table, including auto rules of origin, which the Trump Administration wants to see increase from the current 62.5% regional content requirement to 85%, with 50% of that now U.S. content. 

There is concern among the U.S. business community that some of the U.S. demands could derail the talks completely, resulting in the Administration following through on threats to withdraw, or the trading partners walking away from the table.  AIADA has recently launched a NAFTA page on its website and is working closely with other auto industry and business groups to spread the message about the benefits of NAFTA and how the U.S. auto industry has prospered since the agreement was put into place.   

Meanwhile, the Senate took a step forward in the effort to move tax reform yesterday by narrowly passing a budget resolution. The House and Senate need to pass identical budgets in order to allow Republicans to use a fast-tracking procedure that sidesteps the Senate’s typical 60-vote threshold for passage. The White House has indicated a desire to sign a tax reform package into law by the end of the year.

More than ever, dealers need to drive home the importance of trade with their Members of Congress and showcase the economic impact of international nameplates in the U.S.  There are two ways to get involved:

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Quotes of the Week

“…We see a fading confidence in the value of free markets and international trade, forgetting that conflict, instability and poverty follow in the wake of protectionism.”

            -President George W. Bush (Axios)

…I will also continue to oppose quick fixes of protectionism—legislation like the local content rule, which would force domestic manufacturers of cars to build them with a rising share of U.S. labor and parts. Well, it's a cruel hoax. New cars would be more expensive, more jobs would be destroyed than protected. We would buy less from our trading partners, they would buy less from us, and the world economic pie would shrink. Recrimination and retaliation would increase. “

            -President Ronald Reagan, Radio Address to the Nation on the American National Red Cross and the Williamsburg Economic Summit Conference , June 4, 1983

How Trump Getting His Way on NAFTA Would Reshape the Auto Sector (Bloomberg)

Mexico, Canada and the U.S. are at loggerheads after the latest round of NAFTA negotiations, with America’s neighbors rejecting hard-line proposals by the Trump administration that risk throwing automotive trade on the continent into disarray.

President Donald Trump’s proposed changes -- including requiring vehicles have 85 percent NAFTA-sourced parts with half coming from the U.S. to avoid duties in the region -- are nonstarters for his two major trading partners. Though more talks are planned for November and into next year, the discussions are slow moving as Mexico and Canada remain unwilling to yield to Trump’s America-First demands.

If the contentious U.S. proposals were to be pushed through, what would the changes mean in real terms to the region’s auto industry? Automakers, analysts and experts weigh in on what scenarios to expect in the unlikely event Washington gets its way.

Today, autos can flow between Canada, Mexico and the U.S. without tariffs as long as they as they are made with 62.5 percent content from the three nations. By trying to boost that requirement and add a U.S.-specific rule on top, Trump is banking that some of the auto manufacturing jobs that have crossed the borders will return, making the U.S. “the car capital of the world again.”

That may not go as planned. If Trump were to load up NAFTA with new U.S.-focused mandates, carmakers producing in Mexico could simply pay a 2.5 percent tariff instead to export finished cars to the U.S. That is the rate assessed on U.S. vehicle imports from World Trade Organization countries with Most-Favored Nation status, which both Mexico and Canada have with the U.S. Trump would have to walk away from both NAFTA and the WTO to implement higher tariffs.

Increasing the rules of origin to 85 percent will make it “very difficult for companies to comply,” said Dan Ikenson, director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute, a free-market think tank in Washington. “They’re going to have to shift their sourcing around and that means added costs. It gets to the point where it becomes ‘Ah forget it, we can just export’” cars from Mexico and pay the tariff, Ikenson said.

Mexico and Canada aren’t the only countries that have Most-Favored Nation status with the U.S. -- more than 150 countries fit that bill. China and Eastern European countries like Poland, Slovakia and Slovenia can also export finished cars to the U.S. at the 2.5 percent tariff, and with low labor costs, they may be appealing to carmakers looking to branch out of North America.

“There will always be someone willing to do the work for less,” said Kristin Dziczek, director of the industry, labor and economics group at the Center for Automotive Research in Ann Arbor, Michigan. “Automakers would just pay the 2.5 percent tariff rather than put in new plants in the U.S.”

Ford Motor Co., which took heat from Trump on the campaign trail for announcing it would relocate Focus production to Mexico, said this summer it was canceling those controversial plans and would move output to China instead. The move to end North American production of the model entirely brought $1 billion in savings, Ford said.

Right now, the autos that are traded tariff-free through NaFTA have about 70 percent content from the three countries, according to Center for Automotive Research data. That number could drop if the benefits of NAFTA evaporate or become too costly to enjoy.

There are exceptions. While cars like the Focus can be imported into the U.S. from most countries at a 2.5 percent tariff, light-duty pickups are a different story. Without NAFTA, automakers assembling cars in Mexico and Canada would have to pay the so-called Chicken Tax, a 25 percent tariff on imported light trucks that has been in place in the U.S. since the 1960s.

For that reason, automakers with a big truck business might be willing to take on the investment cost of revamping supply chains to comply with the steeper requirement, said Ikenson of the Cato Institute.

General Motors Co. and Fiat Chrysler Automobiles NV make full-size pickup trucks in Mexico, though both have announced plans to move some work back to U.S. plants. GM said the week of Trump’s inauguration it would begin to bring axle production for its next-generation full-size pickups to Michigan operations, including work previously done in Mexico, while Fiat Chrysler said that month it would build in the U.S. three new Jeeps and a Ram pickup now made in Mexico. Both companies said the plans were in the works before Trump upped the pressure.

Matt Blunt, president of the American Auto Policy Council, which represents GM, Ford and Chrysler on trade issues, said GM and Chrysler could move all pickup production back to the U.S. -- but they might have to push sedan output to Mexico to make room. That would make it a wash in terms of jobs, and would in effect simply add another tax on cars.

“Essentially, if we don’t have a NAFTA or if we have a NAFTA that we can’t use, that’s really a huge tax increase that would undermine our industry or be passed on to consumers,” Blunt said.

This Week in Policy News

The End of NAFTA? For Car Buyers, That Means Higher Prices (NY Daily News)

Toyota Executive: U.S. Seeks ‘Impossible’ Changes to NAFTA for Mexico, Canada (My San Antonio)

Carmakers Rattled by Trump NAFTA Demands (Detroit News)

NAFTA Talks Hit Impasse as U.S. Slams Trading Partners (Politico)

Senate Passes Budget, Clearing Path for Tax Reform (Politico)

This Week in Auto News

Consumer Reports: Toyota Tops for Reliability (USA Today)

How Supercar Dealers Clinch a Sale (The Detroit News)

NADA Data Shows Dealer Profits Eroding (Automotive News)

Must Watch

Watch AIADA’s new video on the benefits of NAFTA to the international brand auto retail & manufacturing industries.

Friday Funny

Nurse Fleeing California Wildfires Puts Horse in Car, Picture Goes Viral

Leave it to human ingenuity to solve almost anything.

Lauren Mesaros, a California nurse, needed to flee from the Tubbs Fire going on in Napa, Sonoma and Lake counties in Northern California. Mesaros also needed to get her three horses, including her pony, Stardust, away from the flames. 

The problem? The trailer only held two of the three horses.  Mesaros' solution? Put Stardust in the car.

“He actually walked right into the car like a dog would,” Mesaros said in an interview.

Mesaros said she put Stardust into the back of her 2001 Honda Accord, aided by her friend Carol Spears, whom Mesaros described as “a horse whisperer.”

Mesaros' sister-in-law posted the picture to Facebook, which has subsequently gone viral. The photo has been shared more than 17,000 times and has the caption: "When your sister in law Lauren has to evacuate her pony from Santa Rosa but no transport is available - you do what you have to do." 

The horses have been taken to nearby Wind Horse Ranch in Sebastopol to wait out the blaze and while Mesaros' property has largely been spared from significant damage, her car isn't so lucky.

“My car will never smell the same again,” she said. (