Less than half a year ago, Germany’s top auto lobbyist was still waxing lyrical about Mexico and the opportunities it presents.
“Mexico is a market with great potential and an interesting investment platform,” said Matthias Wissmann, the president of the Association of the Automotive Industry (VDA).
Mexico, he said, had negotiated free trade deals with more than 46 nations, which made it an ideal place from which to make cars for the U.S. market, he said.
Donald Trump has now put that business model at risk, by bedevilling it and threatening to slap punitive import tariffs on all manufacturers who use it as a production base for exports to the United States. In an interview published over the weekend, he extended that threat to German carmakers.
That also affects auto components suppliers that tend to follow the automakers wherever they go. And if they take a hit from Mr. Trump’s policies, it’s not German manufacturers like BMW, Daimler and Audi that will be affected. Ford, Fiat Chrysler and General Motors rely on the German suppliers, too.
German suppliers have almost quadrupled the number of sites they run in Mexico to 148 in the last five years. Continental has 15 factories in Mexico employing more than 20,000 people and generating annual revenue of around €3 billion, or $3.18 billion. Around two thirds of that revenue comes from exports to the United States.
Continental Chief Executive Elmar Degenhart said the U.S. would hurt itself by imposing import taxes, echoing the reaction of many German leaders to Mr. Trump’s weekend remarks.
“We’ve known for 100 years that free trade secures jobs and creates more prosperity than protectionism. That applies to the auto industry in particular,” he told Handelsblatt.
Germany’s three major auto suppliers have profited massively from free trade. Bosch, ZF and Continental, all among the top 10 largest suppliers in the world, generate almost 80 percent of their revenue abroad. Almost two thirds of their workforces are employed outside Germany.
If import tariffs are introduced for components makers, auto production in the U.S. would also be negatively affected. That’s because many U.S. plants get their components from Mexican factories. In addition, the suppliers are an important employer in the U.S. as well.
Good terms of trade were essential for the auto industry. “By erecting tariffs or other trade barriers, the U.S. would predictably damage itself,” Mr. Degenhart said.
Just like BMW said it had no plans to close its new plant in Mexico, Mr.Degenhart said Continental had not decided to shift production out of Mexico, either. “We need more clarity before taking concrete decisions. We see no reason at the moment to rethink our investment plans in Mexico.”
Bosch, another major German auto supplier, is also refusing to be intimated by Mr. Trump’s threats. It employs some 14,000 workers in 10 factories in Mexico and is currently building an 11th one.
Bosch plans to increase its workforce in the country to 16,000 by 2019 and invested around €90 million in Mexico last year alone. A similar level of investment is planned for 2017.
“Bosch will carry out all planned and agreed investments in Mexico in 2017,” said Werner Struth, managing director of Bosch’s Industrial Technology division. “There are no cancellations or reductions.”
He added: “We don’t expect the end of the free trade agreement NAFTA.”
Lukas Bay covers the auto industry for Handelsblatt, Axel Postinett writes about consumers and business out of New York and Martin-Werner reports on the car industry and other issues from Stuttgart. To contact the authors: firstname.lastname@example.org, email@example.com and firstname.lastname@example.org