Dec 11 2018
Fiat Chrysler Automobiles NV (FCA) announced that it will be opening a new factory in Detroit, which continues to solidify broader trends in the automotive sector highlighted by General Motors’ (GM) announced closures. Although the planned expansion by FCA may appear to be a move in the opposite direction of GM, the goal of relying on SUVs and light trucks is the same. The difference arises in the relative capacity utilization of the two automotive giants. In 2018, FCA is expected to account for 7.0% and 17.3% of the Car & Automobile Manufacturing and SUV & Light Truck Manufacturing industries, respectively. GM’s market share in those two industries is 8.4% and 16.7%. In this case, FCA is seeking to expand its current size whereas GM is looking to reduce its position in cars and increase its position in trucks. Both automakers have the same goal of squeezing more production out of its SUV and truck lines, while steering away from slowed growth in cars.
The US automotive landscape has experienced increased penetration from foreign car production. However, this has largely occurred in the Car & Automobile Manufacturing industry where the majority of domestic demand is covered by imports. In SUV & Light Truck Manufacturing, the value is only 8.9%. As automakers refocus production on larger vehicles, the companies are looking to take advantage of consumer preferences and higher value-added production. Although demand is the key driver of these announcements, understanding the international trade dynamics is also key. The new USMCA deal raised the threshold for domestic requirements for automobiles. So, the focus on the SUVs and light trucks that can be more efficiently produced in the United States will also support companies’ overall ability to meet domestic manufacturing requirements. Moreover, with the current negotiations between the US and China, it appears likely that Chinese tariffs on US cars and trucks will decline from their 40.0% rate. This could open up a market for US made SUVs and trucks, the types of vehicles that US-automakers have the greatest advantage in.