(The legendary VW Beetle, new version.Matthew DeBord/BI)
President Donald Trump has espoused an "America first" manufacturing policy and pushed it hard on the US auto industry.
Both Ford and General Motors have endured attacks from Trump about their operations in Mexico, where automakers from around the world have established factories to export vehicles to both the US and other markets.
Trump wants a build-it-here-sell-it-here approach because he stands to benefit from hiring and manufacturing in battleground states such as Ohio as well as in Michigan, a state he unexpectedly carried in the election. These are states he has to win in 2020 — he must make good on his promises to blue-collar workers or face blowback.
Mexico's lower labor costs and growing auto sector have made it attractive to carmakers. But it's not as if the auto industry just discovered that it's a good idea to build cars and trucks south of the US border.
Major automakers have operated plants in Mexico since the 1930s, with companies such as Ford and Volkswagen later adding factories that have been around since the 1960s. The business logic is compelling: By manufacturing vehicles in Mexico, carmakers can both serve that market and export vehicles to the US, depending on demand.
Remember the VW Bug
A classic example is the legendary VW Beetle. According to Ryan Beene and Christoph Rauwald of Bloomberg:
"Much of Volkswagen's North American output comes from its sprawling Puebla plant in central Mexico. The factory opened in the 1960s to produce Beetles and is the company's biggest outside of its hometown of Wolfsburg, Germany. Puebla has capacity to build about 600,000 Jettas, Golfs and Beetles a year."
Beene and Rauwald noted that this level of commitment to Mexico is awful for VW's business in the event that the Trump administration implements a border tax on imports.
But there's a deeper problem, and it goes to the heart of why the US auto market is the most competitive in the world.
Americans for decades have benefitted from the highest level of choice for carbuyers of any country. The VW Beetle is representative: When it first went on sale in the US in significant numbers in the 1960s, Germany's World War II defeat was little more than a decade old. The country urgently needed to rebuild itself as a manufacturing power, and the little "people's car" fit the bill perfectly. With American roads full of huge sedans, the Beetle was a surprise hit, going on to sell millions and validating the concept of a small, affordable vehicle.
(The original Beetle sold millions and did service as a dune-buggy racer, among many other things.Devkotlan Photography/Wikimedia Commons)