Automakers are watching closely as the Trump administration tries to renegotiate the North American Free Trade Agreement, and the latest round of talks is under way in Mexico City this week.
NAFTA touches almost every business sector — few more than the car industry. Automakers say that changing the agreement could boost their costs and make them less competitive.
Covering approximately 450 million people in the U.S., Canada and Mexico, NAFTA is the world's largest free trade area — with $20 trillion in economic output. The three countries represent nearly a quarter of the trade in passenger vehicles worldwide, according to the Center for Automotive Research.
How would changing the 24-year-old agreement affect the auto industry? To answer that, it's important to understand that not all car companies are the same.
Take Ford. No matter how you look at it, it's a truck company. That's what it sells the most of; that's what it's best at. More than 90 percent of Ford's profits come from the F-series pickup, such as the F-150, according to Morgan Stanley.
Eighty percent of Ford vehicles sold in the U.S. were assembled in the U.S., according to Joe Hinrichs, Ford's head of global operations. He says Ford makes a higher percentage of its vehicles in the U.S. than any other car company.
The Trump administration wants to change the equation for what qualifies a vehicle to be free from taxes and tariffs under NAFTA. Under current rules, 62.5 percent of a vehicle must be made in Mexico, the U.S. and/or Canada to qualify.
President Trump wants that number to go up to 85 percent. In addition, the administration wants 50 percent of the vehicle to be made in the U.S.
Ford is the most American car company, in terms of cars sold in the U.S. and content that comes from the U.S. That's why Hinrichs was upbeat at a recent Detroit event.
While other carmakers have been wringing their hands over NAFTA, Hinrichs said: "We're in a good position to make all our trucks here. We're bringing the Ranger [a midsize pickup] and Bronco here. We're adding capacity at Flat Rock [assembly plant] to build the autonomous vehicle here. So we're ... looking forward to modernization of NAFTA that works for everybody."
Fiat Chrysler Automobiles, Ford's crosstown rival, is a bit different. Fiat Chrysler is a truck, SUV and minivan company, having invented two of those categories. (Its Jeep unit pioneered the SUV with the Wrangler; the Dodge Caravan and Plymouth Voyager were the first modern minivans.) And it's both an American and a European company.
Fiat Chrysler CEO Sergio Marchionne was more blunt in his assessment of possible changes to NAFTA. "I sincerely hope that some of the demands that are being pushed by the U.S. administration are going to be retuned," he told journalists at the North American International Auto Show in Detroit in January.
His company recently announced plans to increase production in the U.S., as well as give workers a $2,000 bonus to celebrate the new tax bill.
He jokes that Fiat Chrysler has been willing to play ball with the administration, but he says NAFTA does not need to be torn up to bring more auto jobs to the U.S.
"I don't think we need to go to the 85 [percent content] number to try and address what President Trump's concerns are," Marchionne said. "I'm hopeful that I think we'll see a more rational number going forward."
Then there's Toyota, a company that makes a lot of vehicles in the U.S. and sells many of them overseas.
"We export 136,000 vehicles [annually] to almost 40 countries around the world. We can only do that and be competitive with NAFTA," says Jim Lentz, Toyota's North American CEO.
Toyota, which sells more cars in the U.S. directly to consumers, is also a lean company. Other manufacturers, such as Ford and General Motors, do more sales to fleets and governments.
Lentz says he is worried that meddling with NAFTA will raise costs. "Russia is going to say [do] I want to buy a [Toyota] Highlander coming out of the U.S.? Or maybe it's less expensive to buy it out of another plant coming out of China," he says.
NAFTA talks among the U.S., Canada and Mexico are scheduled to end in March.
Monica de Bolle, an economist with the Peterson Institute for International Economics, says changing the mix of where the cars come from "would basically force carmakers to rethink their entire production structure."
Even if the administration got everything it wanted, she says, bringing factory jobs back to the U.S. would take several years. And if the jobs do come back from Mexico, she says, they are likely to be done by robots.
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U.S., Mexican and Canadian trade officials are back at it. They are renegotiating the North American Free Trade Agreement, or NAFTA. It's their seventh round of talks in the past six months. Now, progress has been made on small technical details. But as NPR's Sonari Glinton reports, some of the big sticking points involve the auto industry and one key number.
SONARI GLINTON, BYLINE: When you think about NAFTA and the car industry, it's important to know that not all auto companies are the same. Let's start with Ford. Now, no matter how you look at it, Ford is not really a car company. Ford makes trucks. That's what it sells the most of and that's what it's best at. It's where the money comes from. And pickup trucks are where Ford gets most of its profits. Here's Joe Hinrichs. He's in charge of Ford's North and South American operations.
JOE HINRICHS: You know, Ford - we make over 80 percent of our production. Our sales in the U.S. are already built in the U.S., so we make more of a higher percentage of our vehicle production in the U.S. than anybody else.
GLINTON: The Trump administration wants to change how a vehicle qualifies under NAFTA, meaning it's not subject to taxes and tariffs. Right now, sixty-two point percent of a vehicle has to be made in Mexico, the U.S. and/or Canada. Now, here's the number that's causing the anxiety - 85 percent. So 85 percent of the content would have to come from NAFTA countries with half the content coming from the U.S. So Ford being the most American car company for these purposes has the least to lose, which is why Joe Hinrichs sounds almost upbeat.
HINRICHS: So we're in a good position to make all our trucks here. We're bringing the Ranger and Bronco here. We're adding capacity at Flat Rock to build the automic (ph) vehicle here. So we're actually in a relatively good position as far as U.S. content. And we're looking forward to modernization of NAFTA that works for everybody.
GLINTON: If we look at Fiat Chrysler, it's a bit different from Ford. Fiat Chrysler is both an American and a European company.
SERGIO MARCHIONNE: I sincerely hope that some of the demands that are being pushed by the U.S. administration are going to be retuned.
GLINTON: That's Sergio Marchionne, Fiat Chrysler's CEO. He says you don't need to tear up NAFTA to bring more jobs to the U.S. He points to his and other company's investments.
MARCHIONNE: I don't think we need to go to the 85 number to try and address what President Trump's concerns are. I'm hopeful. And I think we'll see a more rational number going forward.
GLINTON: Now, take the case of Toyota, a company that makes a lot of vehicles in the U.S. and sells many of them overseas.
JIM LENTZ: We export 136,000 vehicles to almost 40 countries around the world. We can only do that and be competitive with NAFTA.
GLINTON: Jim Lentz is Toyota's North American CEO.
LENTZ: And I'll give you the perfect example. We export Highlanders to China. If losing NAFTA raises my cost, Russia's going to say, do I want to buy a Highlander coming out of the U.S.? Or maybe it's less expensive to buy it out of another plant coming out of China.
GLINTON: Monica de Bolle is an economist with the Peterson Institute for International Economics, a D.C. think tank that's pro-trade. She says that 85 percent number for content would upend the entire industry.
MONICA DE BOLLE: This would basically force carmakers to rethink their entire production structure.
GLINTON: De Bolle says even if the administration got everything it wanted, change would take time.
DE BOLLE: The jobs and the, you know, bringing back the factories, bringing back all the stuff that the administration says it wants to bring back - that wouldn't happen within a timeframe of one, two, three years. It would take much, much longer than that.
GLINTON: De Bolle says by the time those low-wage jobs come back from Mexico, they'll likely be done by robots. Sonari Glinton, NPR News.
(SOUNDBITE OF BOONIE MAYFIELD'S "THE ROADS TO RHODES") Transcript provided by NPR, Copyright NPR.