Donald Trump tangled with the auto industry during the presidential campaign, decrying in particular Ford's plan to relocate small-car production to Mexico. Ultimately, Trump's tweet shaming was sound and fury, signifying nothing. US automakers have been building cars in Mexico and Canada for decades, long before borderless free-trade and NAFTA became major campaign issues.
UBS auto analyst Colin Langan published a research note this week in which he assessed the impact of Congress' corporate tax reform plan — primarily a tax cut and a deal to repatriate offshore cash — and a "border adjustment" proposal that would tax imports to the US, but exclude exports. Langan wrote that the rules would have a large impact on the automakers as imports would face significantly larger taxes than domestic production. However, he claims that GM and Ford are far better positioned than their competitors. Over 95% of F & GM US sales are from N American plants. Within N America, only 21% and 37% of Ford and GM production is in Mexico or Canada. Together, Ford and GM control over a third of total market share in the US. For much of the US auto industry, then, protectionist border tariffs wouldn't affect business all that much, although the effect on the cross-border supply chain could be significant. Meanwhile, a reduction in corporate taxes will be welcomed by automakers.
In Langan's view, the upshot won't be that these company's are suddenly awash in cash, but he predicts a modest balance-sheet improvement on tax savings. Regardless of how you feel about Trump in the White House, the combination of empty bluster about NAFTA and the auto industry, a corporate tax cut, and a break on rising Corporate Average Fuel Economy (CAFE) standards — which the car companies have been lobbying for anyway — is going to make the auto industry in the US very happy.
