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Trump Versus Toyota: What’s Behind The Controversy

President-elect, feeling his oats, takes aim at Japanese automaker's proposed Corolla factory in Guanajuato, Mexico.
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Toyota became the latest target of Donald Trump’s aim to favor U.S. over Mexican auto production, when Trump grumbled in a tweet Thursday about Toyota’s plan to build a new Corolla plant in “Baja.” Setting aside the fact that he meant the company’s planned facility in Guanajuato in Central Mexico—come on, Mr. President-elect, it’s going to be more important now to get the details right—Toyota might be an early and important test of just how effective Trump’s America First approach to trade and jobs can be. That’s because, in contrast to his earlier automaker targets, U.S.-based Ford and General Motors, Toyota is a more complicated case: it’s a Japanese company with a North American subsidiary headquarters (in Plano), and the production bound for Mexico would be moving not from the United States, but from Canada.

Trump’s tweet (which read in part, “NO WAY! Build plant in U.S. or pay big border tax”) came not long after Toyota’s Japanese leader, Akio Toyoda, said the company would consider the president-elect’s decisions in planning the Guanajuato plant. A reporter had asked Toyoda about it in the wake of Ford’s recent decision to deep-six a $1.6 billion Mexican plant following similar criticism by Trump. Toyoda’s receptivity to change was something of a contrast to the company’s 2015 announcement of its Guanajuato facility, which declared that the $1 billion, state-of-the-art plant would open in 2019 and would employ 2,000 workers, with the ability to produce 200,000 Corollas annually. Toyota said the Corolla production would be transferring from another of its plants in Ontario, Canada, which would be upgraded and switched to making “mid-size, higher-value vehicles.” The company last year sold 360,00 Corollas, a small car that’s also produced at a Toyota plant in Mississippi.

In a 2015 interview with D CEO, Toyota North America CEO Jim Lentz said he was having to learn more about the “business of manufacturing,” especially because of the new plant in Mexico. “I’m going to be the guy who’s going to eventually approve all the specs and the costs of that plant,” Lentz said. “So I need to understand why we’re going in this direction, versus that direction. I’m going to have to do a real quick study on that. The good news is, this is going to be the first new-generation plant that we’ll build globally. So I’m kind of learning … as we’re all going to learn it, as a company, at the same time.”

Trump’s beef is that U.S. companies are exporting good manufacturing jobs to countries like Mexico with much lower costs, effectively putting the screws on American workers. While Toyota didn’t say what its laborers south of the border are paid—it also has a plant in Baja that makes pickup trucks—automakers with Mexican operations reportedly offer workers there about $8 to $10 an hour, plus benefits. The difference between that wage and typical hourly auto-worker labor costs in the U.S.—anywhere from $48 to $58—can allow companies to save $1,300 per vehicle. Car buyers presumably enjoy savings, too.

While Trump views those kinds of “efficiencies” as disadvantaging American workers, companies like Toyota see them as the best way to grow and thrive in a global economy. In a statement on its website Thursday, Toyota pointed out, somewhat defensively, that it was the “smallest importer of vehicles from Mexico to the U.S. in 2016.” It also stated: “Production volume or employment in the U.S. will not decrease as a result of our new plant in Guanajuato, Mexico, announced in April 2015.  With more than $21.9 billion direct investment in the U.S., 10 manufacturing facilities, 1,500 dealerships and 136,000 employees, Toyota looks forward to collaborating with the Trump Administration to serve in the best interests of consumers and the automotive industry.”

At this point, anyway, the president-elect—feeling his oats after the Ford reversal—seems to be saying that America’s best interests would be served if Toyota would just scrap the Guanajuato plan and build the new facility in the U.S. In other words, stay tuned.

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