• Toyota and Mazda want to build a new plant in the US, but they didn’t indicate where.
• The factory will likely be built in the South, where Trump has no political worries for 2020.
• He needs investment and hiring in the Midwest, where foreign carmakers have avoided building new plants.
Toyota and Mazda announced on Friday plans to build a $US1.6 factory to make Corolla sedans and, in Mazda’s case, crossover SUVs, which are popular in the US market.
President Trump welcomed the news. “Toyota & Mazda to build a new $US1.6B plant here in the U.S.A. and create 4K new American jobs. A great investment in American manufacturing!” he tweeted.
The creation of 4,000 new manufacturing jobs is nothing to sneeze at, and from a business perspective, Mazda could use US manufacturing. Its lineup of crossovers has been well reviewed and is helping it to capture gains from a sales boom in America.
But for Trump, the likelihood that the new factory will be built in a state that helps him win re-election in 2020 is extremely slight.
The so-called foreign “transplant” carmakers have favoured states in “Detroit South” for their plants. There are three key reasons for this.
Money in and the UAW out
First, the states, craving economic development, have rolled out the red carpet, offering all manner of incentives.
Second, these states are in many cases adding population, so they have good “backfill” prospects — the ability to provide a stable workforce that can replenish itself over the course of the decades that a billion-dollar investment would require to pay off.
Third, factories in the South are in non-union, right-to-work states. The United Auto Workers has made zero progress organising in the region. An effort in Tennessee at a Volkswagen plant failed a few years back, and right now another UAW-backed campaign at a Nissan factory in Mississippi has turned into a pitched battle, with the workforce on one side and management and the state government on the other heading into a vote that would authorise the formation of a collective bargaining unit.
Trump needs plants in states like Michigan, Ohio, and Pennsylvania — the old-economy realm of Detroit’s heyday, and the swing states that he carried when he won the election in 2016 by a narrow electoral margin. But foreign automakers don’t want to deal with UAW contract negotiations and higher union wages (Although VW did sort of back the effort in Tennessee, to have a German-style workers’ council at its factory; the state government ferociously opposed the campaign, which failed.)
If Toyota and Mazda put the factory in Mississippi, where Toyota currently has a Corolla plant, it will be a gift to a state that Trump carried in 2016 by 18%. Another candidate might be Texas, where Toyota now builds a pickup truck, the Tacoma, whose assembly it plans to to move to Mexico. Trump won there last year by about 9%.
The factory will come online in 2021, according to various reports about the news.
Trump should consider himself lucky that the US is getting any new car plants. Most manufacturers have been dead-set against adding capacity ahead of a sales downturn, as the market starts to slip from its 2016 high mark, when 17.55 million new vehicles rolled off dealer lots.
This column does not necessarily reflect the opinion of Business Insider.
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.