Carmakers Stumped by Trump at Detroit Auto Show

  • Carmakers delay production decisions in ‘unstable’ environment
  • Show floor’s disconnect with demand reflects long lead times

Can Automakers Afford Trump's U.S. Jobs Pressure?

The panoply of passenger cars and electric vehicles glittering at this year’s Detroit auto show -- at a time when sport utility vehicles are king -- shows just how tough it is for automakers to predict fickle consumer tastes. Divining the future will only get tougher under President Donald Trump.

How did the array of star cars here along the frozen Detroit River include the BMW 5 Series sedan and Mercedes-Benz E-Class coupe, plug-in models from Mini and VW, and a newly chiseled Toyota Camry? Keep in mind companies probably committed to these models five years ago when gasoline was $3.60, Barack Obama was setting aggressive fuel-economy rules and Donald Trump was a reality TV host questioning the president’s nationality.

Since then, the U.S. market has grown by more than 3 million sales -- almost all SUVs and crossovers. Fracking and infighting within the Organization of Petroleum Exporting Countries pushed fuel prices down. And that real-estate mogul who turned “You’re fired” into a TV catch phrase? He’ll be sworn in as the world’s most powerful person in less than two weeks.

“Already, manufacturers are complaining that under Trump, the future isn’t predictable,” said Eric Noble, president of The CarLab consulting firm in Orange, California. When the new products on exhibit at the Detroit show were on drawing boards, vehicle sales were recovering from the deepest economic slump since the 1930s. “They’re all now delaying decisions to increase production investment because the environment seems unstable.”

In an industry where billion-dollar factories take years to build and some products hardly change over a half decade, predictability can be as helpful as cheap labor and widely available financing. The incoming president, whose Twitter posts have rattled the likes of Ford Motor Co., General Motors Co. and Toyota Motor Corp., offers little hope for certainty.

Camry Still King

As out of sync as this week’s show floor looks, carmakers can’t abandon sedans, coupes and convertibles entirely. They still managed to sell more than 7 million of them in 2016. While Camry, the top selling car in the U.S. for 15 years, just fell below 400,000 annual deliveries for the first time since 2011, it remained the fourth-best selling model, behind three pickup trucks. Stable cash cows require care and feeding -- meaning investment in new designs and technologies.

The same holds for luxury lines. BMW AG this week will reveal a lighter-weight range of 5 Series, including a plug-in hybrid variant. Daimler AG is showing a roomier redesigned Mercedes-Benz E-Class coupe and Volkswagen AG’s Audi uncovers two new drop-tops, the A5 coupe and S5 Cabriolet. That’s a slew of small and mid-size cars for a slow-growth, SUV-heavy premium market.

SUV Appetite

U.S. consumers are buying SUVs in record numbers for the combination of more cargo space, car-like fuel economy and better-than-minivan looks. Companies will reveal at least a few new ones at this year’s North American International Auto Show, as the event is officially known. 

Nissan Motor Co.’s Infiniti rolls out a concept design for its reworked QX50 crossover, VW will show new versions of Atlas and Tiguan models it’ll need to recover from its diesel scandal, and Audi will share a preview of its future luxury ute, the Q8.

Read more: GM’s Mexico-built SUV could test Trump’s policy

While the industry requires long lead times, its companies do their best to respond nimbly -- to consumers, governments, and now, even to Trump’s Twitter feed.

“When the president of the United States says something, everybody listens,” Carlos Ghosn, CEO of Nissan Motor Co., said in an interview last week at the CES 2017 trade show in Las Vegas. “There is a new president-elect in the U.S., and we want to follow the policies that he’s announcing.”

Trump Chill

Having surprised pundits and pollsters with his unconventional campaign and election win, Trump remains a disruptive force. While executives and investors like the idea of less regulation and lower, simpler taxes for companies and consumers, threats of a “big border tax” on vehicles imported from Mexico have a chilling effect.

Automakers from all around the world have invested in Mexico, especially to make small cars that are difficult to produce profitably in higher-wage nations such as the U.S., Canada, Japan or Germany. It’s hard enough to market fuel-sippers when gasoline costs less than $2.50 a gallon. Adding tariffs or higher labor costs to the equation would only make selling them even less economical.

GM will build the more upscale new GMC Terrain SUV it’s showing for the first time at this week’s show in Mexico. Chief Executive Officer Mary Barra said Sunday the largest U.S. automaker makes production decisions for all new models several years in advance and has no plans to change course.

Even after canceling a $1.6 billion plant in Mexico, Ford still is gambling Trump won’t follow through on his vow to slap a 35 percent tax on Focus compacts and midsize Fusion and Lincoln MKZ sedans it will build there.

“I’m a strong believer that the right policies will prevail because we share the same aspirations that I think the president-elect does: We want a very strong U.S. economy,” CEO Mark Fields told reporters last week. “So we’ll have to see what unfolds.”

— With assistance by Keith Naughton, and John Lippert

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