Toyota is changing its manufacturing strategy in North America, but the success of its new plan will depend on the outcome of North American Free Trade Agreement negotiations.
Industry experts suggest that, should the United States kill off NAFTA, Toyota’s recently announced joint venture with Mazda could significantly hurt its bottom line, according to Automotive News. The two automakers plan to invest a combined $1.6 billion in a small car manufacturing facility in the U.S.
The plant will allow Toyota to more than double its truck output in Mexico. Without NAFTA in place, light trucks could be subjected to a 25 percent “chicken tax” upon import to the U.S., whereas other passenger vehicles would only face a 2.5 percent tariff.
“Hopefully, that is not going to even be considered,”Toyota North America CEO, Jim Lentz, said in a statement. “The risk is that if things got that difficult, then manufacturing leaves North America, because an automaker might say that as long as I’m going to pay a chicken tax, I might as well make these in Thailand or somewhere else. I might as well make them in China.”
Given that Toyota is far from the only manufacturer that builds cars on both sides of the border, enacting such a tax reportedly would have a “devastating” effect on the industry as a whole, according to LMC Automotive vice president of forecasting, Jeff Schuster. As a result, Schuster speculates that automakers that import cars from Mexico would be given a lesser tax.
“There aren’t many times in the auto industry that importers, domestic nameplates, that everyone agrees,” Lentz told Automotive News. “We have to really understand the unintended consequences of tinkering too much with NAFTA.”
The unification of the automotive industry around the potential negative impact of terminating NAFTA is eerily similar to what we saw ahead of the U.K.’s “Brexit” vote. And after the decision was made for the U.K. to leave the European Union, manufacturers revealed the economic impact could be even worse than they feared, and Ford has since cited “Brexit” as the reason for its £65 million ($86 million) third-quarter losses.
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