Fiat-Chrysler (FCAU) hasn’t been tweet-slammed by Donald Trump, like some of its automotive competitors. But the Italian-American carmaker would endure considerable damage if the incoming president tore up the North American Free Trade Agreement, as he has threatened to do.
At the Detroit auto show, Fiat-Chrysler CEO Sergio Marchionne offered the most extensive comments yet by an auto executive on Trump’s hostility toward NAFTA and Mexico, which probably threatens the auto industry more than any other sector. Marchionne supports Trump’s intentions, in general. “I share his enthusiasm about the commitment that he’s making to this country,” Marchionne told a group of journalists in Detroit. But he’s worried that Trump could do more harm than good: “We are so used to living in a NAFTA environment that to live in a world without NAFTA is difficult.”
Fiat-Chrysler operates three factories in Mexico where it builds engines and assembles vehicles including the Dodge Journey, the Fiat 500 and some Dodge Ram trucks. That’s hardly unusual; most carmakers selling in the United States have operations in Mexico.
Fiat-Chrysler just announced it will invest $1 billion in plants in Michigan and Ohio, where it will build three new Jeep models and some additional Ram trucks. Trump tweet-cheered the news and said, “it’s finally happening,” as if the automaker were responding directly to his entreaties. Marchionne corrected that misimpression: “I wish I could give [Trump] credit for this, but the thinking was in place beforehand.”
The Italian CEO pointed out that NAFTA involves both Canada and Mexico, saying he didn’t expect much to change in trade relations with Canada. If Trump were to threaten tariffs against Canada as he has against Mexico, America’s northern neighbor would have some leverage: It both buys and sells lumber, oil and many other products from and to the Untied States and would be able to impose tariffs or other sanctions of its own.
Mexico is in a weaker position, and the Fiat CEO almost sounds sympathetic. “It’s difficult times for Mexico now,” Marchionne said. “A full exclusion of Mexico from trade is going to have pretty negative consequences on Mexico itself. We need a sense of equity and balance in terms of how we disengage from NAFTA.”
If Trump is determined to break with Mexico on trade, Marchionne urges a cautious, phased-in approach. “You can’t do it overnight,” Marchionne said. “Especially for us. It would be impossible. We can’t just pick up all our toys and go home.” He’d like to see a “runway” that allows plenty of time for manufacturers to revamp their supply chains and find new sources of production.
He also feels existing investments in Mexico should be grandfathered in, meaning products already being made in Mexico wouldn’t face tariffs, but new decisions to produce in Mexico would trigger them. In that way, US companies wouldn’t be punished for decisions made in the past that were completely in line with American law and policy.
Marchionne would prefer to find a “happy medium” that addresses Trump’s quest for new manufacturing jobs without roiling the industry. “A good scenario is the continuation of NAFTA,” he said. It’s possible Trump might agree, if he sees other concessions by automakers and feels satisfied they’re doing their part to boost US employment. Keep an eye on Twitter.
Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.