Shifts in the Car Industry

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Donald Trump’s election in 2016, was due in no small part to his promise to revitalize the rust-belt. Then came the tariffs, and now the general geographical distribution of the car manufacturers is shifting. But the shift is not solely restricted to the US.  There are changes happening globally.

The tariffs per-se are the subject of a completely different blog; however, the results are beginning to show.  The following companies represent either car manufacturers or supporting industries that are opening plants in the US on or before 2020: Novelis in Kentucky, manufactures aluminum sheets for vehicles; Volvo Cars USA (STO:VOLV) in South Carolina; Mazda Toyota Manufacturing (JPX: 7621, 7203) in Alabama; Van Hool NV, bus manufacturing and Nokian Tyres (HEL:NRE1V) in Tennessee; Faurecia (PAR:FA) in Missouri, manufactures automotive interiors; Kubota Manufacturing of America (JPX:6326), manufacturing utility vehicles in Georgia. On top of that you have Fiat Chrystler (NYSE:FCAU) planning a new factory in Detroit, BMW (GER:BMW) said it is seriously considering opening a second plant in the US, and as reported last week by the FT, Peugeot (PAR:UG) is considering a return to the US.

So far, it looks like great news for the US.  But. what is happening elsewhere? Well, for starters, there is a dramatic difference between the nationalistic protectionism in the US and open free-trade in Europe.  Shortly after the latter signed a free-trade deal with Japan, companies began announcing plant closures.

It makes sense: if your product is taxed to enter a market, you are more likely to manufacture it in that place.  If the restrictions disappear, you will manufacture them where it makes the most economical sense.  And for Japanese companies the most economic sense is back in Japan, with an army of robots who don’t go on strike, don’t require bathroom breaks, and for whom you don’t need to fund a pension.  A practical example of that is the recent closure announcements of the Honda (JPX:7267) factory in the UK.  Of course, there are many people who will want to blame it on Brexit (why wouldn’t they), but the truth is that the factories would have closed whether Britain stayed in the EU or not, since they are happening as a consequence of the free-trade deal with Japan.

There is also a major ruckus between Japan and France regarding car manufacturers Nissan (JPY:7201) and Renault (PAR:RNO).  The fallout comes following the arrest of CEO Carlos Ghosn.  Should the merger go through, it is very likely that it will result in further consolidation.  Whether it will involve closures in Europe, is yet to be seen, but it is definitely going to reshape the geo-economic balance of power between the host countries.

Be it due to tariffs or lack thereof, there have been massive changes both in the automotive sector, and in  it. And the trend will most likely continue for the foreseeable future. Stay tuned to see more shifts in sector, and their implications in the wider economy.


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