Trump's ‘Chicken Tax’ Could Lift U.S. Car Output, With Drawbacks

(Bloomberg) -- President Donald Trump, irate over General Motors Co.’s plan to cut 14,000 jobs and close down five factories in North America, continued to throw out ideas Wednesday on how to boost American auto manufacturing.

It’s impossible to tell how serious or feasible his policy proposals are at first glance, but his latest tweets have a ring of truth to them.

Yes, adding a 25 percent tax on imported cars would cause sales of these models to drop and probably would cause more vehicles to be built in the U.S. -- but there’s a cost:

  • Building a plant from scratch is expensive and takes several years. Example: Toyota Motor Corp. and Mazda Motor Corp. are spending $1.6 billion on a new car facility in Alabama, which won’t open until 2021. And this doesn’t factor in the time it took for the companies to find a suitable site and negotiate tax and other agreements with local governments.
  • Acquiring an existing plant is still expensive and takes time: In the 1970s, Volkswagen bought an unfinished Chrysler factory in Pennsylvania to build cars. It took almost two years for output to begin. More recently, Tesla Inc. bought a former GM/Toyota plant in California in 2010 and spent about two years remodeling it before producing the first Model S. Moving into a finished plant is difficult because companies’ manufacturing systems are different and they need to establish local supplier networks.
  • Building in the U.S. doesn’t guarantee sales success. Nissan Motor Co. and Toyota build full-size pickups here -- Titan and Tundra -- but sales of both models still lag behind those of similar products from GM, Ford Motor Co. and Fiat Chrysler Automobiles NV.

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