Toyota’s Lentz still bullish, but concerned about ‘crazy’ trade implications

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Lentz: Very bullish, but worried about "some crazy" consequences for trade policy.

DETROIT – The trading and pricing environment under US President Donald Trump is the greatest potential threat to the automotive industry, said Jim Lentz, CEO of Toyota North America.

Although Toyota remains "very, very optimistic" on the overall market, Lentz said that "some crazy" possible implications of trading and Trump's research into the impact of car imports on national security "could be devastating for the industry ".

Trump's rates on aluminum and steel under Section 232 of the Trade Expansion Act of 1962 have boosted the Japanese carmaker by 40 percent, he said. That is despite the fact that more than 90 percent of its steel originates from the U.S.

"Everyone sees unit costs of somewhere between $ 100 and $ 400, on steel alone," he said.

& # 39; New & # 39; NAFTA deal

The industry, he said, is "a sigh of relief" with Trump signing a "new" NAFTA deal, known as the agreement between the US and Mexico-Canada, but there are still challenges to pass it through Congress .

If the deal is delayed, Lentz believes that Trump can reuse Section 232 or other resources as leverage instruments that can damage the industry.

"I'm sure there will be fireworks before it's over," he said.

Lentz called the agreement between the US and Mexico-Canada "the most aggressive" deal worldwide with regard to the rules of the country of origin. The agreement requires vehicles to be manufactured for 75 percent of their components in the United States, Mexico or Canada to be eligible for zero rates.

Toyota, he said, believes that it can meet the new standards.

Lentz, after his remarks, told reporters that the Trump government is up to date and "understands" Toyota's views on trade and tariffs.

Healthy outlook

In addition to the potential headwinds in trade and tariffs, Lentz said the Japanese car manufacturer expects an average sales of 16.6 million US light vehicles by 2025, including a potential reduction of 300,000-400,000 units by 2019.

"I think the industry is strong," he said, adding that this prediction takes into account a weakening of the general economy. "So we are still very optimistic about the total market."

That optimism includes cars. Toyota, he said, expects to benefit from the Detroit car manufacturers significantly cutting or leaving traditional cars.

But that does not mean that the company will not cut through some of the nameplates.

"If you have vehicles in your line that do not have a strategic value, do not offer value and you do not make money, chances are that you have to leave that company," he said. "You did not have to do that in the past."

Lentz used Scion, the former "youth" brand that was assassinated in 2016, as an example of ending a product by Toyota once it has taken its course.

Part of that reasoning is to allow the company to invest additional resources in emerging technologies such as autonomous vehicles.

Dealers will, according to Lentz, play an important role in Toyota's future mobility efforts. Everything that the Japanese car manufacturer looks at, he says, will also include his dealers.

He said: "Everything we do will improve the strength of our dealers."