Assembly Halls

Donald Trump is clearly deteriorating.  He keeps talking about arresting and/or executing opponents, serves McDonald's French fries to pre-selected drive-through customers, visits a disaster area in North Carolina and disrupts ongoing recovery efforts, and jokes about women who died for not getting the proper reproductive care.  But once in awhile, I must admit - and I don't like to - Trump makes a valid point.

Trump explained his car tariff proposals last week in an interview before the Economic Club of Chicago explaining how more foreign automakers, particularly the Germans, need to build manufacturing plants in the United States to avoid the tariffs he advocates.  

"Mercedes-Benz will start building in the United States," Trump said.  "They have a little bit, but do you know what they really are? Assembly [lines] like in South Carolina, but they build everything in Germany and then they assemble it here. They get away with murder because they say, 'Oh yes we are building,' but they don’t build. They take them out of a box and assemble them."

That's actually right. It's important here to make the distinction between a car factory that turns raw material - steel, glass, and plastic - into cars and a car factory that takes pre-assembled parts like doors, hoods, and engines and puts them together.  Many of those parts are in fact made around the world, and that economic model doesn't help companies in America that could produce those same parts.  Volkswagen's history in the United States reflects this distinction.  

VW was the first non-American automaker to manufacture cars in the United States when it opened a manufacturing plant in Westmoreland County, Pennsylvania in 1978.  The plant managed to last ten years, and it produced thousands of Rabbits, Golfs and Jettas for the U.S. and Canada.  Until its 1988 closing, it made economic sense to build the cars where VW wanted to sell them.   Volkswagen's Mexican factory was a plant like that, but it was an assembly plant, taking parts from crates sent from Germany and assembling them into cars. 

Then, in 1992, VW decided that, to keep costs low for the American consumer, the third-generation Golf (above) and Jetta were to be built from the ground up at Volkswagen's factory in Puebla, Mexico.

A real manufacturing plant benefits the local economy in that it involves sourcing materials locally requiring expertise in making the parts as well as putting them together to create a car.  One could argue, in fact, that the result is a car of better quality.  But before 1992, the Mexican factory had had no experience in making cars from the ground up, and the plant managers didn't know what they were doing. The result was that the quality of the first few cars they made was so bad that the introduction of these cars was delayed for over a year. 

Trump realizes that a manufacturing plant involves more effort to make a product than one that just assembles the product from existing parts, and when the materials for the product are sourced locally, that means a more robust industrial base and a more integrated economy.  The move to turn Puebla from an assembly plant into a full manufacturing plant benefited the Mexican economy, and the lower costs of producing the cars south of the Rio Grande than producing them in Wolfsburg - it's certainly easier to import cars from across the border than from the other side of the ocean - benefited the American consumer and also the Canadian consumer.  But, when you manufacture a product from scratch rather than just assemble parts to make the product, it's important to have everything working in concert with each other.  And VW's Puebla factory was being told - on short notice, I might add - to make cars with no manufacturing ability.  If VW had sold the cars the Mexican factory tried to make at the start, word of their poor quality would have spread like wildfire and even VW die-hards like I would have stopping buying Volkswagens. That would have meant the end of Volkswagen in North America, which was already on death's door beforehand.  (The first third-generation Mark 3 Golfs and Jettas appeared as 1993 models in the San Diego area but were not available in the rest of the U.S. or Canada until the 1994 model year.)

So, I should take Trump seriously when he says that the Germans should build more cars in America as opposed to just assembling them, right?  Well, here's the thing.  Volkswagen's plant in Chattanooga, Tennessee currently operates as an assembly plant.  What made economic sense for VW with the Westmoreland plant in Pennsylvania in 1978 and for the Puebla plant in Mexico in 1992 no longer makes economic sense for either the Puebla or Chattanooga factories now, as both operate as assembly plants.  It would be great if VW or any other foreign automaker could manufacture and not just assemble their cars in the U.S.,  but that's not feasible now.  So, if Trump thinks that foreign automakers are and should always be obliged to manufacture rather than just assemble cars in the United States, he's clearly mistaken.

He's also mistaken when he says the long, back-breaking work of assembling a car from pre-existing parts is so easy, "you could have a child do it."

Please, when I was a child I couldn't even assemble plastic model cars!

And by the way, Trump, the company is not called Mercedes-Benz.  It's called Daimler AG.