Donald Trump was at it again with a sunrise tweet aimed at General Motors.
General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!
— Donald J. Trump (@realDonaldTrump) January 3, 2017
It’s just the latest example of the president-elect trying to set policy in 140 characters.
The details are more interesting.
The Cruze, which is sold around the world and manufactured in several places, was the mainstay of the Lordstown, Ohio auto plant. Three shifts couldn’t keep up with demand, so GM started bringing Cruze models — hatchbacks — from Mexico. Most Cruze models sold in the U.S. are made in the U.S.
But something happened last year. Fuel prices went down and you — the American driver — didn’t want small, fuel-efficient cars anymore. It was back to SUVs and trucks for you.
So more than 1,200 peple will lose their jobs when they’re furloughed later this month, an illustrative example of how the economy works: You get the economy your spending decisions create.
More than 60 percent of the new vehicle market in the U.S. right now is SUVs and trucks.
“It’s supply and demand, and right now the demand is not there for what we have,” said Glenn Johnson, president of a United Auto Workers union local at the Lordstown plant east of Cleveland.
Americans have been moving away from cars toward trucks and SUVs for several years now as gas prices have dropped to near $2 per gallon and the larger vehicles have become more efficient. Baby boomers and young people are attracted to smaller SUVs because of their cargo-carrying ability, high seating position and visibility. Also, most are now built on car underpinnings, so they are more maneuverable than old truck-based SUVS.
But why was General Motors making the Cruze in Mexico, too? This 2015 Motley Fool article has the answer. Mexico has something the United States doesn’t have with other countries where the Cruze would be sold: free-trade agreements with over 40 countries.
That’s important. A company that exports from Mexico has duty-free access to markets that cover about 60% of the world’s economic output, according to the Wall Street Journal. Put another way, because they don’t have to pay import duties, automakers exporting from Mexico to these markets can lower their retail prices, take more profits, or both.
In other words, it’s a big competitive advantage. And it’s one that more and more automakers are looking to get.
The Lordstown, Ohio plant is one that was saved in 2009 by the U.S. auto bailout.