As Trump targets Toyota over Mexico,
Nissan faces bigger risk
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[January 06, 2017]
By Naomi Tajitsu
TOKYO (Reuters) - U.S. President-elect
Donald Trump has threatened Toyota Motor Corp <7203.T> over its
Mexican-built cars, but the biggest risk from a punitive tariff would be
for its compatriot Nissan Motor Co <7201.T>, the largest automaker
operating in the country.
Trump has criticized U.S. companies like General Motors <G.N> and Ford
Motor Co <F.N> which manufacture abroad, accusing them of costing U.S.
jobs. On Thursday he took on Toyota, warning the world's largest
automaker that it would face a "big border tax" if it exported
Mexico-built cars to the U.S. market.
But it is Nissan, Japan's second-largest automaker, which would be the
bigger victim of any tax punishment. Nissan built its first overseas
plant in Mexico in 50 years ago and now produces more than 800,000 cars
there, mainly its entry-level Versa and Sentra sedans.
Nissan's production dwarfs that of Toyota, Honda Motor Co <7267.T> and
Mazda Motor Corp <7261.T> in Mexico. It exports roughly half of its
output to the United States, where it also has production plants.
Vehicles made in Mexico comprise roughly one-quarter of Nissan's total
U.S. vehicle sales, industry experts say, compared with around 30
percent for smaller rival Mazda, but less than 10 percent for Toyota and
Japanese automakers together produced around 1.4 million vehicles in
Mexico in the year ended March, nearly 40 percent of the country's total
output. According to the Japan External Trade Organization, they plan to
ramp up production to 1.9 million by 2019.
Current production in Mexico is dwarfed by the number of cars they
produce in the United States, their single largest market, where Japan's
top three automakers alone produced around 4 million vehicles in 2015.
Trump has said he plans to renegotiate the North American Free Trade
Agreement between the United States, Canada and Mexico, and has vowed to
impose a 35 percent tariff on cars exported to the United States from
According to JP Morgan estimates, an increase in tariffs on cars
exported from Mexico to the United States to even 10 percent would hit
Nissan's consolidated operating earnings by 10.3 percent, more than 5.5
percent at Mazda. Toyota would see a hit of 0.7 percent, while Honda 2.2
All four Japanese automakers building cars in Mexico said they have no
immediate plans to change operations, and one Asian auto executive told
Reuters his company long ago made a strategic decision to make Mexico a
production hub in North America, and that it is tough to alter its
[to top of second column]
Employees work at a production line before the opening of Nissan's
new plant in Aguascalientes, Mexico. November 12, 2013.
"We can't turn back the clock on these decisions," said the
executive, who did not have clearance to speak to media and so
declined to be identified.
"What we need to explain more clearly (to Trump) is that most
automakers are not cutting production capacity or jobs in the United
States to make Mexico an additional production hub."
Still, analysts said automakers would likely think twice about
expanding production in the country in the coming years.
"As long as this administration is in place I suspect (Nissan is)
not going consider any additional capacity there," CLSA analyst
Chris Richter said.
Trump's criticisms come just as Japanese automakers are shuffling
their production portfolios to boost supply of popular,
higher-margin sport utility vehicles (SUV) and trucks for the U.S.
Honda last year announced it would expand its U.S. production
capacity to build more of its CR-V SUV, while shifting production
Toyota has said that its Guanajuato plant under construction in
Mexico will produce the entry level Corolla sedan, a vehicle segment
currently produced at its plants in Mississippi and Ontario, Canada.
Demand for the cars has slumped in recent years as cheap gasoline
prices has prompted drivers to buy more SUVs.
"We're always considering ways to increase production in the United
States, regardless of the political situation," Toyota President
Akio Toyoda told reporters on Thursday.
(Reporting by Naomi Tajitsu and Maki Shiraki; Additional reporting
by Norihiko Shirouzu)
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