On Jan. 17, Toyota announced plans to shift production of its Tacoma pickup from San Antonio to Mexico, a day after the Senate OK’d an updated North American trade pact.
The announcement’s timing may have been coincidental — a Toyota spokeswoman said it “was not related to trade politics” — but the Senate’s action swept aside any concerns the automaker may have had about assembling more pickups in Mexico.
The United States-Mexico-Canada Agreement, which President Donald Trump is expected to sign Wednesday, doesn’t impose tariffs on vehicles imported into the U.S. from Mexico or Canada. On that front, it’s a continuation of the North American Free Trade Agreement, which was adopted in 1994 and came under fierce attack by Trump, both as a candidate and president.
Toyota plans to move assembly of its Sequoia SUV to its South Side plant soon after ending Tacoma production here in late 2021. The automaker said the re-alignment won’t result in job cuts in San Antonio, where it employs 3,200 and its on-site suppliers an additional 4,000.
“Obviously, changing manufacturing locations for motor vehicles is a multibillion-dollar decision that is not made on the spur of the moment,” said Owen Stuart, a market research analyst at Freedonia Group, an industry research company based in Cleveland.
“I suspect that Toyota had been planning to realign its production for a while,” he said, “but the uncertainty of tariffs and the trade war made them look for trade stability before committing.”
It’s not hard to see why. As a presidential candidate, Trump slammed NAFTA as one of history’s worst trade deals. As president, his tone hasn’t softened much.
In 2017, Toyota said it would build compact Corollas at a plant then in the works in Guanajunto, Mexico, the facility that will absorb Tacoma production from the manufacturer’s San Antonio plant.
Several weeks before his 2017 inauguration, Trump responded on Twitter: “No WAY! Build plant in U.S. or pay big border tax in January 2017”
Toyota eventually scrapped plans to assemble Corollas at the Mexican plant. Instead, the automaker announced in 2018 that it was partnering with Mazda to build a plant in Huntsville, Ala., that would make the vehicle. The company has since said it will manufacture an SUV at that facility.
In the meantime, Toyota completed the plant in Guanajunto and began assembling Tacomas there in December.
Despite that fraught history, Toyota and other automakers won a key concession during negotiations on the revamped trade deal, forestalling potential new tariffs by the Trump administration.
Light trucks such as the Tacoma, an additional 2.6 million vehicles and $108 billion worth of Mexican auto part imports would be exempt from any potential tariffs, according to a Nov. 30, 2018, letter from U.S. Trade Representative Robert E. Lighthizer to his Mexican counterpart.
The side agreement “clearly shows the influence the automakers have in D.C.,” said Mark Schrimer, director of public relations at Cox Automotive.
Toyota’s North American CEO, Jim Lentz, had publicly denounced potential new tariffs before the trade partners reached agreement on the USMCA, warning that new levies could stop the automaker from reinvesting in its U.S. plants.
While Toyota said no jobs will be lost in San Antonio, neither does it plan to add new jobs.
The manufacturer will continue to produce the full-size Tundra pickup here. It’ll be joined in 2022 by the Sequoia, a lightly selling SUV.
Mary Lovely, an economics professor at Syracuse University and a senior fellow at the Peterson Institute for International Economics, sees Toyota’s announcement as tied to the Senate vote.
“It was a public relations thing,” she said. Toyota, she said, would not want to be seen moving Tacoma production to Mexico and bringing new jobs to its Guanajunto plant but not its San Antonio facility before the Senate approved the trade agreement.
Toyota spokeswomen Marjorie Schussel said the company’s announcement was tied to a ceremony for the first all-new 2020 Highlander rolling off the assembly line at its plant in Princeton, Ind.
“The fact that the Senate passed the USMCA around the time of our event was purely coincidental,” she said.
Toyota has created about 1,000 new jobs in Guanajuato in addition to the 2,100 workers the company employs at a plant near Tijuana, which has manufactured the Tacoma since 2004.
Mexico is not a major market for the Tacoma. Toyota sold about 5,000 of those pickups to Mexican consumers last year. The bulk of its production in Mexico, at least 80 percent, will be sold to U.S. customers, analysts says.
Toyota sold more than 248,000 Tacomas in the U.S. in 2019, according to the manufacturer.
A key part of the USMCA aims to create new U.S auto jobs and raise the pay of Mexican workers. Mexican auto production workers’ wages are as low as the equivalent of $3 an hour.
The agreement requires automakers to manufacture 40 percent of their motor vehicles and 45 percent of light trucks such as the Tacoma in plants where assembly workers earn at least $16 an hour. The idea is that if car and truck makers have to raise wages in Mexico, they might be more willing to open factories in the U.S., where hourly pay is higher. And if they choose to produce in Mexico, they’ll raise the pay of Mexican workers.
However, the rule probably won’t affect Toyota, said Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research.
Toyota already manufactures the engine for the Tacoma at its factory in Huntsville, Ala., and its transmission comes from a supplier in Durham, N.C. The average wage at those facilities is above $16 an hour, she said. The engine and the transmission combined, she added, account for around 45 percent of the vehicle.
A 2014 study put the average wage at the Toyota plant near Tijuana at under $4 an hour. Toyota has not released the current average hourly wage for its Mexican workers.
A 2019 International Monetary Fund study found that the new trade agreement could push average autoworker compensation in Mexico to $5 an hour.
The average worker at the Toyota San Antonio plant makes $24 an hour.
Dziczek said low Mexican wages isn’t the only reason why Toyota moved all Tacoma production to Mexico. Another factor is the new plant’s location — in central Mexico — which allows easier access than Texas to the U.S. Pacific Coast to ship cars and trucks.
After Trumps signs the USMCA, the Canadian Parliament needs to approve it.
Randy Diamond covers energy and manufacturing in the San Antonio and Bexar County area. Read his stories and more local coverage on our free site, mySA.com, and on our subscriber site, ExpressNews.com. | [email protected]