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COMMENTARY: Playing the Trump PR game

CEOs of importers will be forced to consider public and private ramifications of their strategies

By: Eric Kulisch
 | 
Photo: Kevin M. McCarthy/Shutterstock
   Chief executive officers are rapidly learning how to play a whole new game that could knock out their businesses: Trump dodgeball.
   In recent weeks, President-elect Donald Trump has used Twitter to take corporations to task for certain practices, such as outsourcing, a move designed to put pressure on those organizations to accede to his position on growing U.S. jobs. Among those targeted have been Carrier, Boeing, Lockheed Martin, Amazon, and several auto manufacturers.
   In response, corporations have trumpeted new U.S. investments and bringing back jobs from Mexico.
   But large corporations don't switch gears that fast on huge investment decisions. The companies simply accelerated announcement of plans that were already in the pipeline to generate goodwill with Trump.
   The auto industry provides a particularly illustrative case.
   Trump took a strong protectionist stance during the election season, saying he would slap high tariffs on Mexican goods until the trade deficit with Mexico is corrected and that U.S. companies manufacturing on the other side of the southern border could be targeted with 35 percent import tariffs.
   He criticized Ford for abandoning its U.S. workers to build cars in Mexico. Soon after the election, Ford announced it was reversing course on plans to close an assembly plant in Louisville, Ky. Then, in early January, Ford announced it was canceling plans to build a $1.6 billion assembly plant in San Luis Potosi, Mexico, and would instead invest $700 million at its Flat Rock, Mich., assembly plant to produce electric sport-utility vehicle and autonomous vehicles. The investment will create 700 additional jobs, the company said.
   Trump took credit for saving jobs at Ford, implying he forced the automaker’s hand. It’s a picture we’re likely to see more of in the coming years: creating the perception of a problem, then taking action that closely resembles current policy and claiming victory for the working class.
   In the first decision, Ford never planned to shut down the Kentucky assembly line or eliminate any jobs there. Last year, it arranged with the United Auto Workers union to shift Lincoln MKC production to Cuautitlan, Mexico when the current contract expires in 2019, to make room for more production of the popular Ford Escape. Now the premium SUV will continue to be made in Louisville. It’s a minor concession to keep Trump at bay.
   As for the reversal of the Mexican investment, Ford still plans to move production of the Ford Focus to Mexico. Now it will be built at an existing plant in Hermosillo. What really happened is that demand for the Focus and other compact cars has slowed, in part because of low oil prices. Ford didn’t need a whole new plant to make those vehicles, so it is enhancing economies of scale and saving money by utilizing an existing facility. The original decision to shift the Focus to Mexico was coupled with plans to repurpose an assembly plant in Wayne, Mich., to make higher-profit light vehicles, such as pick-up trucks.
   That’s an example of how automakers, or other manufacturers, for that matter, often produce high-margin products in the United States, and less profitable models in low-cost countries.
   The same strategic thinking applies to the new Ford decision. Electric vehicle and autonomous vehicles require high-end production and skilled workers – exactly the type of production automakers tend to reserve for their American facilities. Some of the savings from building the Mexican plant will support the expansion of the Flat Rock assembly plant, outside Detroit, to make room for these battery-powered and hybrid models
   To be sure, Ford officials stated their decision to abandon the Mexico investment was a vote of confidence for President-elect Trump’s ability to improve the economy and create a more favorable business environment at home through tax cuts, scaling back fuel-economy standards, infrastructure investment and deregulation. But don’t be fooled – that statement was part of the political theater to appear responsive to Trump. The real drivers behind Ford’s investment change are market conditions, supply chain optimization and the bottom line.
   Trump also took General Motors to task for importing cars from Mexico, threatening to impose a large border tax on the firm if it continues to make its Chevy Cruze south of the border. GM fired back that all Cruze sedans are assembled in Lordstown, Ohio, and that only 4,500 hatchbacks, or 2.4 percent of total U.S. sales, are imported from Mexico. GM officials said they would not change their Mexican production strategy, which is a bit of an industry outlier in that a significant portion of profitable pick-ups and crossover wagons are made in Mexico. In fact, GM tends to rely on outsourcing to low-cost countries more than its U.S. competitors, even importing Buick sport utility vehicles from China this year.

The real drivers behind Ford’s investment change are market conditions, supply chain optimization and the bottom line.

   On Tuesday, GM announced it will invest an additional $1 billion in U.S. manufacturing facilities, which will add or retain 1,500 jobs. The company also said it will bring back to Michigan axle production from Mexico for its next-generation full-size pickup trucks, creating 450 jobs at home.
   Again, the move should be looked at in the context of the growing competitiveness of the U.S. manufacturing sector due to low energy prices, increases in production costs abroad and strong consumer demand.
   Furthermore, GM for the past four years has been implementing a strategic plan to streamline and simplify its far-flung global operations to improve efficiency, including insourcing the vast majority of its information technology operations. Last year, GM announced $2.9 billion in U.S. investments and has invested more than $21 billion in U.S. operations since 2009.
  GM simply accelerated plans they were already developing to throw an olive branch to the Trump administration. Company officials have indicated that the plans were in development for months or years and that they don't plan to change their global manufacturing strategy.
   Trump has also trained his guns on Toyota, tweeting that if the Japanese car maker goes ahead with plans for a new plant for Corolla compact cars in north-central Mexico it will be subject to targeted tariffs. Toyota has manufacturing plants in Alabama, Indiana, Kentucky and West Virginia, and officials said the Mexican plant will not affect employment in those locations. The President-elect made similar threats Monday against German automakers BMW, Volkswagen and Daimler, all of which manufacturer in the United States as well as Mexico. BMW says it still plans to build a $1 billion plant in San Luis Potosi by 2019.
   Trump praised Fiat Chrysler earlier this month for its plans to invest $1 billion in two existing U.S. plants, investment that will create 2,000 new jobs. Once again, however, the expansion is aimed at assembly lines for higher-margin pick-ups and SUVs.
   Meanwhile, the company recently started importing a small SUV made in Italy, and is moving some other models to Mexico for production. And the announcement came days before the Environmental Protection Agency accused the company of using illegal software in diesel vehicles designed to cheat emissions tests, with the Jeeps and Dodge Ram pick-up trucks able to produce far greater emissions allowed by regulation.
    Emphasizing “Made in America” vehicles could be a way to curry favor with the incoming Trump administration in hopes that new political appointees, who view the EPA as too heavy-handed on businesses, will dismiss the complaint.
  Hyundai Motor Corp. and its affiliate Kia Motors said Monday they will invest $3.1 billion in the United States in the next five years, 50 percent more than they spent in the previous five-year period. The group is considering building a new factory in the United States and may produce upscale Hyundai Genesis and a new SUV in the country, officials told reporters in Seoul.
  The real reason for the move, according to reporting by Bloomberg, is that the Korean automakers face capacity constraints at their plants in Montgomery, Ala., and West Point, Ga. Kia recently opened a $3 billion plant in Nuevo Leon, Mexico, with 80 percent of the vehicles produced destined for export to the United States and Latin America.
   Trump’s emphasis on reinvigorating the United States’ manufacturing sector has more than just the auto industry on notice. Business leaders are scrambling to engage crisis management companies to figure out how to respond if Trump happens to train his sights on their firms.
   But it will be important for the rest of the trade community to separate hype from reality during the Trump administration.
   One thing is for certain: Trump is not bashful about claiming credit for positive developments in which he may not have played much of a role. Even if he only nudges the ball forward a few inches, Trump will proclaim major steps have been taken to meet his campaign promises.
   In an interview Sunday on CBS News program “60 Minutes,” President Barack Obama acknowledged that he failed to do a good job publicizing and promoting many of his administration’s successes, which might have made a difference in how popular opinion viewed his presidency and Democrats in general.
   “Part of the job description is also shaping public opinion,” Obama said. “We were very effective in shaping public opinion around my campaigns, but there were big stretches while governing where, even though we were doing the right thing, we weren’t able to mobilize public opinion firmly enough behind us to weaken the resolve of the Republicans to stop opposing us. There were times during my presidency when I lost the P.R. battle.”
   That’s a mistake Donald Trump won’t make. The challenge will be to keep the White House spin machine in perspective.
   Aside from early gyrations in their stock price, it might seem several firms targeted with threats of punitive action have meekly capitulated. In reality, those firms were also motivated to make changes on their own for purely business reasons, and tossed Trump a public relations bone he could show supporters as evidence that his “tough” approach on the economy, jobs and wasteful federal spending works.
   It’s a win-win: Trump gets to claim victory for saved jobs or taxpayer money, while the companies get credit for working with the president and being good corporate citizens. Most importantly, the companies get out of Trump’s doghouse and the negative public scrutiny that comes with it.
   Amazon is another instructive example. The e-commerce powerhouse has also adapted to the Trump environment. On Jan. 12, Amazon announced it would create more than 100,000 new full-time jobs across the country during the next 18 months, boosting its workforce to about 280,000 employees.
   The Trump transition team said the President-elect played a role in the decision because he encouraged heads of tech companies at a meeting in December to keep jobs and production inside the United States. Amazon founder Jeff Bezos and Trump had a strained relationship during the campaign, with Trump criticizing Bezos for buying the Washington Post to support Democrats and Bezos calling Trump a threat to democracy.
   But Amazon’s announcement appears to be a gesture to Trump with little substance, because in reality most of the jobs were already baked into the company’s previously announced plans to open new fulfillment centers in Texas, California, Florida, New Jersey and other states, as well as invest more in cloud services, machine learning and advanced logistics.
   Walmart said Tuesday it will it will make $6.8 billion worth of capital expenditures to expand its store network, distribution centers, and e-commerce and online grocery pickup services. The world’s largest brick-and-mortar retailer said the investments will create about 10,000 retail jobs and an estimated 24,000 construction jobs.
   The company also said it will provide another $3 million in grants through the U.S. Manufacturing Innovation Fund to six universities working to advance sustainability and innovations in textile manufacturing, which it said has proven to be one of the most challenging industries to reshore to the United States. 
   The company first shared its capital plans in October.
   Once again, Trump took credit, tweeting: "Thank you to General Motors and Walmart for starting the big jobs push back into the U.S.!"
   In the first and most famous example of Trump scrutinizing, one-by-one, the sourcing strategy of U.S. companies, Trump praised Carrier Corp. in December for reversing plans to move furnace production from its Indianapolis plant to Mexico. But the decision only saves about 700 jobs. The company is still moving at least 1,200 jobs from the same plant and another one in Indiana to Mexico. Trump and Vice President-elect Mike Pence, who until days ago was still Indiana’s governor, convinced Indiana’s government to provide $7 million in state tax incentives to retain the jobs.
   Carrier officials, once again, cited the favorable business atmosphere promoted by Trump as a major reason for its change of heart after the company originally estimated it would save $65 million annually by outsourcing production. Looking deeper, parent company United Technologies has major contracts with the federal government and the concession on Mexico production was a small price to pay to maintain that book of business.
    Meanwhile, Trump took umbrage with an NBC News report Wednesday that suggested companies were simply recycling previous job announcements to please the president-elect, tweeting, "Totally biased NBC News went out of its way to say that the big announcements from Ford, GM, Lockheed & others that jobs are coming back to the U.S., but had nothing to do with TRUMP, is more FAKE NEWS. Ask top CEOs for those companies for real facts. Came back because of me!"
   The truth is more complicated, of course. President Obama, for instance, has more standing to claim those job gains, especially after saving about 1.5 million jobs in the auto industry with a federal bailout of GM and Chrysler in 2009.
   U.S. companies will likely be forced to play these games of public perception and private reality unless the Trump administration moves beyond micromanaging individual companies to more sustainable, macroeconomic policies.