GM recently released plans to close auto plants in Michigan, Ohio, and Maryland:
General Motors is poised to end production at five plants in the U.S. and Canada, kill off several passenger cars – including the Chevrolet Impala – and slash 15 percent of its salaried workforce in a sweeping cost-cutting plan designed to boost profits and adjust to America’s changing tastes in vehicles.
The Detroit-based automaker said it would end production by the end of 2019 at its Lordstown Assembly plant in northeast Ohio, its Detroit-Hamtramck Assembly plant in southeast Michigan, its Oshawa Assembly plant in Ontario, its Baltimore Operations parts plant in Maryland and its Warren Transmission Operations plant in southeast Michigan.
This news, obviously came as a surprise to many people, likely a huge surprise to some people in Michigan who voted for Donald Trump after hearing his campaign promises. Donald Trump promised them that there would be no auto plants closing in Michigan if he were elected President:
Donald Trump campaigned for president on a promise to Michigan auto workers that “If I’m elected, you won’t lose one plant, you’ll have plants coming into this country, you’re going to have jobs again, you won’t lose one plant, I promise you that.”
So much for that promise.
The worst part of Trump’s broken promise is that it didn’t happen because of something that was out of Trump’s control, it happened in large part because of Donald Trump. GM is closing plants and laying off workers because it needs to cut costs. Why does GM need to cut costs? Because Donald Trump’s tariffs on steel and aluminum bit into GM’s profitability by a billion dollars:
That’s General Motors’ estimate for the increase in its 2018 material costs.
Automakers and suppliers are warily watching material costs climb. Reasons include higher oil costs, inflation and tighter supplies. But the industry also is absorbing the impact of tariffs — 25 percent on certain steel products and 10 percent on aluminum entering the U.S.
GM’s $1 billion estimate is double its earlier forecast. “The challenge has been greater than anticipated,” CFO Chuck Stevens told analysts during GM’s second-quarter earnings call. He described the materials market as “uncertain and volatile.”
GM is not at fault for having to spend an extra $1 billion to purchase steel and aluminum. That is directly attributable to Trump’s tariffs on steel and aluminum. Cars are made out of steel and aluminum. GM can’t just make them out of something else. Higher commodity costs eat into profitability, and when profitability decreases for a company, guess what they do? They try to cut costs. GM can’t cut commodity costs, which they have no control over. So, what costs can they cut? They can shut down operations and layoff workers, which is exactly what they have done. There is no real debate in play here. GM is laying off thousands of workers because Donald Trump’s steel and aluminum tariffs decreased the company’s profitability by a billion dollars.
Donald Trump thought that his trade war would help American workers. He promised the people of Michigan that his tough stance on trade would ensure that no plants would close. However, Donald Trump’s tariffs on steel and aluminum actually hurt auto companies, who have to buy those raw materials, so instead, his tough stance on trade has actually caused auto plants to close.
Donald Trump talked tough about trade. The problem is: Donald Trump does not know anything about trade. Another American auto manufacturer, Ford Motor Company, illustrated Trump’s idiocy on trade just a couple months ago.
On September 9, Donald Trump wrote one of his usual inane tweets in response to a story about Ford cancelling the importation of a line of its automobiles that are made in China:
“Ford has abruptly killed a plan to sell a Chinese-made small vehicle in the U.S. because of the prospect of higher U.S. Tariffs.” CNBC. This is just the beginning. This car can now be BUILT IN THE U.S.A. and Ford will pay no tariffs!
— Donald J. Trump (@realDonaldTrump) September 9, 2018
Trump’s tweet was in response to this story:
Ford Motor Co. is canceling plans to import a new crossover model from a plant in China after President Donald Trump’s tariffs undermined the business case for bringing the vehicle to the U.S. market.
Trump’s move to slap China-built autos with an additional 25 percent levy in July undermined the profitability of the Focus Active that Ford planned to start shipping into the U.S. about a year from now, said Kumar Galhotra, president of North American operations. The company decided it wasn’t worth investing more money in a vehicle that would have had fewer than 50,000 unit sales a year in the U.S.
Trump thought that story meant that Ford will now build that model in America. But they won’t. What Trump doesn’t understand is that different auto models are popular in different parts of the world. Ford F-150s are popular in America. As a result, they are assembled in America (Dearborn, MI and Kansas City, MO, to be exact). Other Ford models, like the Ford Focus, are more popular in Europe and Asia, so they are assembled in Germany and China. This is how all of the large auto manufacturers, Foreign or Domestic, operate now.
It is simply more efficient to assemble a model where the model is most popular.
This is why foreign automakers BMW, Toyota, Honda, Mercedes Benz, Nissan, Volkswagen, Hyundai, Kia, and Volvo all build models in the United States and employ American workers. If there’s one thing that should be done to help American workers, it should be to unionize the workers in these Foreign auto assembly plants. That would actually help American workers. Cutting off trade doesn’t help Americans in any way.
In this particular case, the assembly location of the Ford Focus Active model is not going to change. They will still be assembled in Germany and China, where they are most popular. What is changing is that Ford will no longer import any of these to the United States to be available for purchase by American buyers.
The end result of this is that American consumers will have one less option to choose from when going to buy a car. This is what happens with trade wars. Nobody wins. Companies lose. And consumers lose. Everyone loses.
Ford’s response to Trump’s tweet correctly suggested that Trump doesn’t know what the hell he is talking about:
The Dearborn-based company issued a statement in response to the president’s tweet:
“It would not be profitable to build the Focus Active in the U.S. given an expected annual sales volume of fewer than 50,000 units and its competitive segment. Ford is proud to employ more U.S. hourly workers and build more vehicles in the U.S. than any other automaker.”
A trade war actually hurts one of America’s most iconic companies, Gabrielsen said. “This forces Ford to forfeit the sales they would have had if they could continue to import that low-volume niche vehicle.”
Trump simply has no idea what he is doing with regards to trade. It is difficult to keep grandiose promises. It is even more difficult to keep grandiose promises if the person making those promises is an idiot who knows nothing about the subject he is talking about.