Driving While Tweeting Could Be Hazardous for U.S. Carmakers

(Bloomberg Opinion) -- For carmakers in the U.S., the price of honesty is high.

President Donald Trump’s preoccupation with the auto industry was on show again over the past week, when he tweeted that he had asked General Motors Co. Chief Executive Officer Mary Barra to sell or “do something quickly” with one of the plants it is idling under a wide-ranging cost-cutting plan.

He separately congratulated Toyota Motor Corp. on its recent (re)advertisement of 2017 plans to raise investment in the U.S. Although only $750 million of the touted $13 billion of spending over five years is newly-announced, the press release produced a nice big number and won a more favorable presidential tweet:

When Barra first came out directly with GM’s plans to cut around 15 percent of its workforce and idle multiple plants in North America last year, investors applauded the company’s proactive approach. The wrath of Trump was unleashed, however, with the president labeling the decision as “nasty” and warning that GM wasn’t going to be “treated well.”

In truth, Barra was only bowing to the inevitable. U.S. carmakers are being forced to retool and upgrade. The auto industry doesn't have enough capacity to meet demand for the kind of vehicles (mostly trucks and SUVs) that consumers want to buy. As of January this year, such mismatches meant that the underutilized or free vehicle assembly capacity was 2.8 million units, according to the Center for Automotive Research. 

The market is also heavily dependent upon imports, mostly from Canada and Mexico. While the U.S. produced around 11 million light vehicles last year, 17.3 million were sold. That ratio has remained broadly flat over the last decade, meaning even massive disruptions like the 2008 financial crisis haven’t really changed the amount that automakers are prepared to invest in U.S. car plants vis-a-vis the rest of the world.

Other automakers have taken pains to apply a presidential sugar-coating to the bitter pills they’re administering. Fiat Chrysler Automobiles NV, for instance, last month announced grand plans to invest $4.5 billion in five plants, adding thousands of jobs. Masked under that headline, it said separately that it was slashing 1,371 workers at an Illinois plant. Trump seemed not to notice, and thanked the company in a tweet:

Despite what Elon Musk might say, it’s not simple or cheap to buy, sell or establish a carmaking plant in the U.S. A typical factory requires an initial investment of around $1 billion to $2 billion. The natural capitalist process of creative destruction means jobs will be lost in some areas while others will be spawned.

Trade, for all it attracts Trump’s ire, has been a relatively small factor in the employment declines in the U.S. auto industry over the last couple of decades, according to a 2016 working paper by researchers at the U.S. International Trade Commission. Changes in domestic consumption and technology-related improvements in labor productivity have been far more important.

The big money is now being spent developing the next generation of vehicles. Automakers and their suppliers invested more than $20 billion in 2017 developing new technology like alternative fuels and new materials, according to the American Automotive Policy Council.

That’s quite enough for the industry to be getting on with without letting the fear of a Trump tweet drive the pace of restructurings and overhauls. Automakers will be better served by keeping their eyes on the road ahead, not the social media distractions along the way.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal.

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