General Motors

Trump assails GM over car production in Mexico and threatens stiff tax

PUBLISHED : Wednesday, 04 January, 2017, 12:57am
UPDATED : Wednesday, 04 January, 2017, 12:57am

President-elect Donald Trump on Tuesday threatened to impose a “big border tax” on General Motors for making some of its Chevrolet Cruze compact cars in Mexico, an arrangement the largest US automaker defended as part of its strategy to serve global customers, not sell them in the United States.

Trump’s comments marked his latest broadside aimed at an American company over jobs, imports and costs before he takes office on January 20, signalling an uncommon degree of intervention for an incoming US president into corporate affairs.

“General Motors is sending Mexican made model of Chevy Cruze to US car dealers-tax free across border. Make in USA or pay big border tax!” Trump said in a post on Twitter.

On a separate note, Ford announced Tuesday it is cancelling plans to build a US$1.6 billion plant in Mexico and instead will boost US production of electric vehicles.

“Ford today announced it is cancelling plans for the new plant in San Luis Potosi, Mexico,” the company said in a statement.

At the same time, Ford is adding 700 US jobs and investing $700 million during the next four years to expand its Flat Rock Assembly Plant in Michigan so that it can build self-driving and electric vehicles.

Trump did not provide further details but previously vowed to hit companies that shift production from America to other countries with a 35 per cent tax on their exports into the United States. He also has denounced the North American Free Trade Agreement between the United States, Mexico and Canada.

GM, the world’s No. 3 automaker, said it sold about 190,000 Cruze cars in the United States in 2016. All of the sedan versions sold in the United States, or about 185,500, were built at its plant in Lordstown, Ohio. About 4,500 hatchback versions of the Cruze were assembled in Mexico and sold in the United States.

“GM builds the Chevrolet Cruze hatchback for global markets in Mexico, with a small number sold in the US,” it said in a statement posed on its website.

The Cruze is one of GM’s best-selling cars, although its sales numbers were down significantly in 2016.

Shares of GM rose 1 per cent to $35.19 after falling about 1 per cent following Trump’s tweet before the market opened.

Since winning the November 8 presidential election, Trump has targeted GM’s rival Ford, United Technologies, Boeing and Lockheed Martin. Trump also has touted decisions by companies to keep some production in the United States, including United’s Carrier unit in Indiana.

Last month, Trump announced the formation of a council to advise him on job creation comprised of leaders from a variety of major US corporations including GM Chief Executive Officer Mary Barra.

GM said in 2015 it would build its next-generation Chevrolet Cruze compact in Mexico as automakers look to expand in the Latin American nation to take advantage of low labour costs and free trade agreements. The company said in 2015 it would invest $350 million to produce the Cruze at its plant in Coahuila as part of the $5 billion investment in its Mexican plants announced in 2014, creating 5,600 jobs. GM said last year it would import some Cruze cars from Mexico.

Trump, a Republican who will succeed Democratic President Barack Obama, campaigned for president using tough rhetoric on trade and promises to protect American workers, and targeted several companies by name.

His latest comments come as a congressional Republican tax proposal meant to boost US manufacturing faces mounting pressure from industries that rely heavily on imported goods or parts.

Last month, 81 industry groups including several automaker groups rejected the proposal, known as “border adjustability.” The policy would help manufacturers by exempting export revenues from corporate taxes. But it would tax imports, hitting import-dependent industries.

According to Automotive News, GM began producing the Cruze in Mexico last year, making 52,631 cars there. In comparison, it built 319,536 of them in the United States. Previous versions of the Cruze sold in Mexico were made in a GM South Korea plant, it reported.

The shift is part of a larger trend among Detroit’s Big Three automakers to produce more small cars for the North American market in Mexico in an effort to lower labour costs, while using higher-paid US workers to build more profitable trucks, sport utility vehicles and luxury cars.

In November, GM said it planned in early 2017 to lay off 2,000 employees at two US auto plants, including the one in Lordstown. US small car sales have been hurt by lagging consumer demand and low gas prices. GM’s US Cruze sales were down 18 per cent through November.

GM will halt the third shift at the Lordstown plant on January 23, cutting 1,250 jobs.

Representatives for the United Auto Workers union could not be reached immediately for a response to Trump’s comments.