GM Betting on Pickup Trucks Made in Mexico

General Motors Co.’s assembly plant in the Mexican city of Silao, the automotive heartland of the country, made over 400,000 large pickups during 2017 that are highly profitable, and is important to the launching of a new generation Chevrolet Silverado truck later in 2018.

Now, the Silao factory as well as the profit generated by it are at risk.

If threats made by U.S. President Donald Trump are followed up by the White House to exit the North American Free Trade Agreement, trucks assembled at the Silao plant and shipped to the U.S. could receive a tariff of 25% referred to as the chicken tax by the auto industry.

The tariff on truck goes back to the trade problems in the 1960s between the U.S. and Germany over exports of chickens grown in the U.S. It protects the profit for automakers in Detroit long after the origins of the tax faded from the memory of most.

Now, the tax could upset the profitability of the new generation truck, and could potentially jeopardize thousands of jobs for people on both sides of the border as well as billions of dollars of investments by automakers.

Recently, GM inaugurated a new line of production for its 10-speed transmission in Silao, and late in 2017 started hiring 600 new employees, said sources, placing more bets on one of the most lucrative production categories offshore for U.S. automakers.

People close to the plans for GM said the company would shift its production of a few heavy duty versions of this new Silverado and Sierra to a Flint, Michigan plant.

CEO at GM Mary Barra when asked Saturday if GM was considering pulling its production of pickup trucks out of Mexico did not answer directly when saying the company would continue working to get a modernized agreement for NAFTA.

Fiat Chrysler Automobiles said late week that it would move its production of Ram pickups to Michigan from Mexico by 2020.

During an event promoting the Silverado on Saturday, executives with GM said that Mexico was a big part of the manufacturing footprint of the automakers in North America.

Alan Bately the chief of GM North America told reporters that the trucks built in Mexico have engines made in the U.S., making everything interlinked.

NAFTA helped to transform the state of Guanajuato, where Silao is located, since the trade pact was signed back in 1994, followed by almost $18 million in investments across the auto sector.