Automakers enlist dealers in border tax fight

When Honda's Ridgeline pickup won the North American Truck of the Year award at the Detroit auto show last month, one Twitter posting about the achievement caught the eye of John Mendel, executive vice president of American Honda Motor Co.

It called the brand an "Asian importer."

"That's not a phrase I've heard in a while," Mendel told a group of foreign-brand dealers in New Orleans two weeks later. "But old habits die hard, and in some circles Honda, Toyota, Mercedes, BMW and other international brands are still looked at as kind of "guests' in the American auto industry rather than the stakeholders that we are."

It's a sensitive subject for the Japanese company, which has been building cars in the U.S. since 1982 and has a dozen U.S. factories cranking out everything from weed whackers to private jets, not to mention more than a million cars and light trucks a year. And it's a particularly sensitive time for foreign auto companies as President Donald Trump and Congress consider a revamp of trade and tax policies that threaten to drive a wedge between the Detroit 3 and their international competitors.

In that political context, foreign automakers are placing new urgency on asserting their role as pillars of the U.S. manufacturing economy, and they're leveraging the political power of their all-American dealer networks to help press their case.

"It's still early and not time to panic," Mendel told the gathering of the American International Automobile Dealers Association. "But we need to be vigilant and we need to be engaged."

Trump began needling the Detroit 3 via Twitter during the presidential campaign for investing in auto plants in Mexico, and within hours of his "America first" inaugural address declared his intention to renegotiate the North American Free Trade Agreement.

But Detroit 3 leaders were all smiles as they exited a meeting with the president last month voicing support for his "pro-growth" agenda, and General Motors CEO Mary Barra retains an influential role as a member of a presidential advisory board.

Compared with the Detroit 3, Toyota and Honda have less exposure to changes in NAFTA. Their big concern is the so-called border adjustment tax of 20 percent that's a key pillar of a Republican tax overhaul plan being considered in Congress. The tax isn't like the straight tariff, or "border tax," on Mexico-made goods that Trump has called for; rather it would reformulate overall corporate taxes in a way that favors exporters and penalizes importers.

While Honda and Toyota have a bigger U.S. factory presence than other foreign automakers, they depend on the flexibility of their global production bases for key components and vehicles, such as the Prius, most Lexus products, Toyota's new C-HR crossover and Honda's Fit and HR-V.

Even for a U.S.-built product like the Toyota Camry -- which has the highest U.S. content of any vehicle sold in America at about 75 percent -- Toyota North America CEO Jim Lentz said the border adjustment tax on the 25 percent foreign content could raise the price by roughly $1,000. Far greater price increases would ripple across the new-vehicle fleet, critics of the BAT argue, and depress the overall auto market.

Paul Ritchie, incoming chairman of AIADA who has two Honda stores and a Kia store, told fellow dealers at the New Orleans meeting that a tax on foreign content would threaten their livelihoods.

The BAT "will absolutely devastate both dealers and manufacturers, and many members of Congress have no idea of what they are being asked to vote for," he said. AIADA set up a table outside the event where dealers could write their legislators in opposition to the tax on foreign content.

Likewise, Toyota asked its dealers to weigh in with Washington against the tax. "We believe deeply in the benefits of open international trade and fair competition," said Toyota spokesman Scott Vazin. The BAT "is essentially a hidden consumer tax."

The lobbying efforts are aimed at cementing the message that the foreign companies deserve to be treated as American manufacturers.

An AIADA report, citing 2015 figures, said there are 36 manufacturing facilities for foreign nameplates making 46 percent of all vehicles produced in the U.S., or about 5.4 million units. Those plants employed more than 125,000 people directly and supported about 1.25 million jobs indirectly, including at about 9,500 franchised dealers -- numbers the group's members hope will help tell their American stories for them.

"How all this comes out remains to be seen," Honda's Mendel told AIADA gathering. "But I encourage each of you to talk to your representatives in Washington and tell them how important the international auto industry is to their constituents, to their community and to your businesses."