You Auto Know Week in Review: October 27, 2017

You Auto Know 10/27/17

AIADA, Others Launch Pro-NAFTA Driving American Jobs Coalition

Earlier this week, AIADA and other auto associations, manufacturers, and suppliers, announced the creation of Driving American Jobs, a broad coalition of the U.S. auto industry concerned with proposed changes to NAFTA.  In addition to AIADA, the coalition is comprised of the Alliance of Automobile Manufacturers, the American Automotive Policy Council, the Global Automakers, the Motor Equipment Manufacturers Association, and ALL their members. The goal of the effort is to educate policymakers and the public about the benefits of NAFTA to the U.S. auto industry, particularly as concern heightens over the direction and tenor of the NAFTA negotiations. The next round of NAFTA talks are set to begin on November 17.

Meanwhile, the Senate took an important step to protect consumers by narrowly passing a resolution overturning the CFPB’s Anti-Arbitration Rule. The misguided CFPB rule would have prohibited mandatory arbitration clauses in all new contracts.   In addition to being 12 times faster than litigation, according to a study by the CFPB itself, on average, arbitration results in bigger awards for the people who bring disputes. The vote is a significant victory for consumers, as well as businesses who could have been exposed to frivolous lawsuits.   AIADA worked with a coalition of ATAEs, banking, and financial institutions to encourage support of the resolution.  Since the House had already passed the bill earlier this year, it will now move to President Trump’s desk for his signature. 

The House also cleared another obstacle to moving forward on tax reform by narrowly voting to approve a budget resolution, which was approved by the Senate last week.  House Ways & Means Committee Chairman Kevin Brady (R-TX) has since announced that the long-awaited text of the tax bill will be released on November 1.

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

"America's 1.1 million dealership employees rely on NAFTA to offer customers a wide selection of safe, affordable new cars and trucks.  It’s clear NAFTA is working for the towns and communities served at the 16,700 dealerships across America, and helping create more stable, skilled American jobs with each passing year.”

            -Cody Lusk, President of AIADA (Driving American Jobs 10/24 Press Release)

"What we're looking at in trade is about turning back the clock….This is the time that you've got to dig deep. This is the time we've got to fight.  This is a job where you're going to look back and say, 'What did I do when they wanted to turn back the clock on trade? Where was I and how far did I go to fight for it?'"

            -Stephen Ciccone, Group Vice President of Government Affairs for Toyota Motors North America (Politico)

“What does it mean to withdraw from this agreement, or de facto withdraw by imposing such high content requirements that nobody meets it? It really means that costs go up in manufacturing vehicles in North America just at a time when we’re going to have to worry about not only the traditional competition we have from Japan, Korea, Europe, but China becoming a major auto producer.”

            -Rufus Yerxa, President of the National Foreign Trade Council (Inside U.S. Trade)

Trump's NAFTA Threats Put Auto Industry On Offense (Forbes)

Auto industry groups have formed a new advocacy coalition, Driving American Jobs, to urge Donald Trump not to withdraw from the North American Free Trade Agreement, using language that the real-estate-mogul-turned-politician can understand.

“We’re Winning With NAFTA,” says the group’s website. Auto trade associations representing General Motors Co., Toyota Motor Corp., Volkswagen AG, Hyundai Motor Co., Ford Motor Co. and nearly every other major automaker are part of the coalition, backing an ad campaign to convince the Trump administration that the trade agreement has been crucial in boosting U.S. auto production and jobs.

In last week’s round of negotiations with representatives of Canada’s and Mexico’s governments, Trump and his advisers suggested changes to the rules of origin for autos, which are used to determine how much of a vehicle is made in a certain country.

Academics and analysts who study trade policy have cautioned the Trump administration on upending the 23-year-old trade pact, on which industries have made investments for years. “The mere possibility of a trade war [over NAFTA or potentially with China] or tariffs going up distorts the decisions firms make, and that has implications for real economic activity,” says Kyle Handley, the Sanford R. Robertson assistant professor of business administration and an assistant professor of business economics and public policy at the University of Michigan's Stephen M. Ross School of Business. “It means some investments don’t happen; workers that might have been retained are laid off. A tariff might be beneficial for some firms, but I’d be surprised if the gains make up for other losses that would ensue.”

NAFTA is widely condemned by labor unions and blue-collar workers in states where Trump overachieved on votes in the 2016 election. “Unfair trade” was a message that resonated in Rust Belt states like Michigan, Wisconsin, Indiana and Pennsylvania.

NAFTA, like any trade pact, has a lot of language opaque to anyone outside the legislative bubble. But it boils down to an agreement that allows the U.S., Canada and Mexico to trade hundreds of billions of dollars of goods with one another without having to pay tariffs.

On cars and trucks, there is a rule that allows duty-free imports and exports among the three nations so long as 62.5% of the vehicle can be traced to one of the three. The Trump administration is rattling sabers in the direction of raising that percentage, or requiring that a certain percentage is sourced specifically in the U.S.

There is no evidence that moving the percentage up to, say, 75% or requiring a percentage be from the U.S. will result in greater investment in the U.S. Instead, that move could so upset supply chains and production investments already made that the result will just be higher prices to consumers. Trump may be holding the threat as a cudgel over the heads of the company CEOs in the hopes they will give him what he wants: more factory investments in Rust Belt states that’ll give the administration a headline and photo op.

One of the problems that industry, and especially the auto industry, has these days with any notion of tinkering with the content rule is that the global supply chain has become so diverse and complex that assigning country-of-origin status to every component has become difficult or impossible. Components such as carseats and transmissions, for example, are made of parts that come from all over the world before they are assembled either as a module system in one plant or the end-assembly in another.

One of the organizations fighting changes to NAFTA is the Association of Global Automakers. The group’s CEO has been vocal in his opposition to the Trump administration’s protectionist trade rhetoric. “A focus on bilateral trade balances or content requirements obscures a much larger and more important picture. In the case of the North American Free Trade Agreement, more than one million more vehicles were produced in the United States last year than in the year before NAFTA,” says John Bozella, CEO of the Association of Global Automakers.

Free trade has long been a tent-pole policy position for Republicans. But the party is faced with the reality that a lot of people who voted for Trump and other Republicans in 2016 do not share that position. That is going to make navigating the midterm elections and the next presidential election pretty tricky.

This Week in Policy News

Auto Industry Tells Trump: 'We're Winning With NAFTA' (New Hampshire Union Leader)

How a Trump Idea on Cars and NAFTA Could Backfire: QuickTake Q&A (Bloomberg)

Congress Makes It Harder to Sue the Financial Industry (Wall Street Journal)

House Paves Way for Trump Tax Reform Plan by Passing $4T Budget (Fox News)

This Week in Auto News

Nissan Unveils an Electric Car More Powerful Than Its GT-R (Bloomberg)

Hyundai hires Toyota veteran Brian Smith as COO (Automotive News)

8 Best SUVs to Buy Now (U.S. News & World Report)

Must Watch

Watch the brand new video from the Driving American Jobs coalition, featuring several AIADA members.

Friday Funny

Take Note:  This kid will be looking for a job one day!