TRAVERSE CITY, Mich. -- At one of the largest automotive business conferences in North America -- the CAR Management Briefing Seminars -- there's one glaring omission in the discussions. Tariffs.
Running from keynote address to meetings, most auto executives are uninterested in discussing the impact of tariffs -- despite experts warning the U.S. tariff on steel and aluminum could cost the industry 45,000 jobs and the Trump administration's threat of a 25 percent imported car tariff could cost more than 195,000 jobs.
Instead these executives are discussing mobility and disruption from new technologies and the policy decisions that could alter the future of transportation. In other words, we're here in Traverse City having a tea party in the middle of a hurricane.
There are a few answers to why traps remain shut from about the biggest political impact on car sales since the Great Recession.
Fear remains the biggest concern. Fear of what the president of the United States could do in retaliation for publicly defying him. The president could, theoretically, eliminate the biggest competitive advantage for U.S. automakers in a single tweet -- the Chicken Tax.
Somewhat ironically, domestic automakers' big edge in the local market stems from a tariff -- yes, a tariff -- on imported trucks. Profit margins are so high on trucks, top-end models can boast a profit margin of $50,000 in some cases. Trucks are easily the most profitable vehicles in the U.S. market.
In the midst of a trade war with Mexico, Canada, European Union and China, the Chicken Tax is He Who Must Not Be Named. You may have noticed the recent talks between European Commission President Jean-Claude Juncker and President Donald Trump omitted any discussions about automotive tariffs. If there is a global battle on tariffs, the less their name is spoken, the less they are on the table.
The history of the Chicken Tax, which includes a 25 percent tariff on trucks, is interesting enough to discuss here.
Following World War II, U.S. chicken farming established factory-like efficiency and mass-produced so much poultry that farmers began exporting excess supply, tanking global poultry prices. In trade speak, this is called dumping -- something the U.S. has criticized China of doing with its steel oversupply.
France and West Germany retaliated with tariffs on U.S. chicken imports. President Lyndon Johnson, just in office following the assassination of John F. Kennedy, decided to up the stakes in a tit-for-tat move. In 1963, the U.S. implemented a 25 percent tariff on potato starch, dextrin, brandy and light trucks.
The move collapsed the U.S. truck business for Volkswagen and later Toyota. Toyota, of course, inevitably invested in U.S. operations, and the Japanese automaker now assembles its Tundra full-size pickup in San Antonio.
Of course domestic automakers have since continued to lobby to keep the Chicken Tax long after tariffs on U.S. poultry subsided.
A research expert told me the automakers are "terrified" the president, who has proven unpredictable for the industry, could give away the Chicken Tax in negotiations if they speak up too loudly.
The few executives willing to discuss tariffs believe their impact will be muted because the administration will wrap up trade negotiations quickly.
Claus Mohlenkamp, CEO of Freudenberg Sealing Technologies, which operates its North American headquarters near Detroit in Plymouth Township, Mich., said the supplier is passing any rise in steel costs through to its customers. He views the 25 percent tariff on foreign steel that has caused domestic steel prices to rise 20 percent since the beginning of the year as a matter of inflation.
"We always have pricing pressures, and steel is not a big-ticket item for us ... (but) we have to pass it on; we cannot absorb it," Mohlenkamp said in a Tuesday morning interview. "It's not a big deal yet. I think it will be settled (soon)."
Yet those automakers feeling the tariff pain already are shockingly mum on the issue. Earlier this month, General Motors updated its 2018 earnings guidance, also revealing $300 million in additional commodity costs in its second quarter. GM CFO Chuck Stevens told investors the rising costs were tied to a host of factors, not just U.S. steel and aluminum tariffs.
GM did, however, warn the Trump administration in June of the impact of the White House's threat to slap a 25 percent tariff on imported cars.
"Increased import tariffs could lead to a smaller GM, a reduced presence at home and risk less — not more — U.S. jobs," the automaker said in submitted comments to the U.S. Department of Commerce.
But automakers are generally relying on their industry groups, such as the Alliance of Automobile Manufacturers, and lobbyists in Washington, D.C., to influence U.S. Trade Representative Robert Lighthizer and President Trump.
So here we are, at a large automotive business conference, with no automakers on panels to discuss material tariff impacts. Instead forecasting experts discussed the issue during a Tuesday morning panel and two panels tomorrow on trade policies and North American Free Trade Agreement. It's of note that the NAFTA panel features government representatives from Canada and Mexico, but no U.S. official agreed to CAR's invite to speak.
It's possible our trade officials fear having to defend the Chicken Tax in a public forum. Maybe they had a scheduling conflict. Or maybe they're just chicken.