Why Nationalism is Killing Cars

Introduction

Unless you’ve been living under a rock for the past couple of months, you’ve likely heard of the term nationalism. In a nutshell, nationalism is the belief that one's nation is superior to all other nations. It’s a bit of a buzzword right now, and with good reason. Nationalism is a very important component of politics and government around the world; and it has led to some very powerful shifts in the political beliefs of the citizens in many countries. To put it into perspective: American nationalism has played a big part in Donald Trump’s U.S. presidential campaign; while British nationalism was the cornerstone of the referendum that ultimately led to Britain seceding from the European Union.

So far this year, we have seen the effects of both the concept of nationalism as well as government decisions being made based on nationalist ideology. These two critical factors have made a big impact on individual sectors as well as the economy at large. The global automotive industry has felt these effects, and the resulting shocks are bad news for car buyers.

 

Brexit

The British referendum to secede from the European Union (commonly known as Brexit) was based, among other things, upon a strong sense of independence among the British people. They did not want to be tied to transnational decisions based upon a collective group of nations. The Brits wanted to defend their way of life, their Britishness, if you will.

Unfortunately, seceding from the EU meant giving up all of Britain’s free trade benefits with the rest of the Eurozone nations. Predictably, this had an impact on the automotive industry in Europe. Cars became more expensive to bring into the U.K.  Take Vauxhall, for example. Although they are historically seen as a British brand, many Vauxhalls are actually built in Opel’s factories in Germany. Once tariffs made exporting Vauxhalls more expensive, that extra charge was passed on to the consumer, reducing the demand for Vauxhalls. With a lower demand for Vauxhalls, Opel’s German plants had no choice but to scale down production, hurting Germany’s GDP and Opel’s own employees.

On the flip side, the same situation is being faced by British manufacturers looking to export to other countries in the Eurozone. Tariffs will make Jaguars, Land Rovers and Minis more expensive for Europeans to buy, reducing the overall demand for British-made cars. Even if the car was made in Britain for a British consumer, prices will likely still increase due to the increased cost of importing raw materials.

 

The American Auto Sector

Of course, not all nationalistic mentality is necessarily reflected in government policy. But even the mere sentiment of nationalism amongst a population can put a bitter taste in the mouths of car buyers. A classic example of this is in the United States, where General Motors made a decision that would upset many American autoworkers and politicians.

And that decision was to build a Buick.

Now, you might think of Buick as the purveyor of limp-wristed, excessively chromed land yachts for the elderly. You might be surprised to learn that Buick is actually fairly popular amongst Chinese buyers. As a result, Buick currently has a presence in the Chinese market that is as strong, if not stronger than, their position in the American marketplace. When you consider this, and add the cheaper Chinese labour market into the equation, it would make sense for General Motors to build Buicks in China.

So that’s what they did. Meet the Buick Envision. And, boy, is it irritating a lot of Americans.

It’s tough to say what the Buick Envision will be like as a midsize, upper-middle-class luxury crossover, but it’s already been trashed by many Americans, some of whom would likely be Buick’s best customers. Yes, I mean Baby Boomers. The outcry has run the full gamut, from people saying that GM is stealing jobs from Americans in their time of greatest need, to people actually villainizing China and claiming that GM has given into the enemy, so to speak, and is actually jeopardizing America’s position as a global hegemony in the battleground of international politics.

As a result, you have an SUV that may be perfectly competent at what it does; but it doesn’t matter because it was made in China. It’s a painfully shallow argument for a few reasons.  The Envision is hardly the first American vehicle to be made outside of America. Dodge Challengers, Chevrolet Equinoxes and even the new Ford GT are built in Canada. Hell, until recently, the Dodge Freakin’ Ram, the ultimate Mopar icon of Americana, was built solely in Mexico. And what about GM “giving into China”? The rebuttal to that is simple—the process of globalization pretty much guarantees that China is going to gain more power at the international stage regardless of what GM does. We’re not talking about Chevrolet’s complete lineup being assembled in China, we are talking about a Buick that is likely not going to make a scratch in GM’s overall sales figures.

But, as is often the case in politics, it’s the emotional appeal that has done the damage. The UAW has already raised enough of a kerfuffle to taint the image of the Envision in the eyes of Buick’s best customers in the American market. Never mind that the Envision will be quite a bit cheaper than if it was built stateside, it was made in China so it must be bad.

 

Conclusion

In the end, the principle of comparative advantage plays the key role in the story. Vauxhall made many of their cars in Germany because it was cheaper to produce them there, and Buick built the Envision in China for the same reason. Had it not been for the nationalistically-motivated Brexit vote and a strong anti-Chinese sentiment from the UAW, neither one of these companies would have shot themselves in the foot.

Kyle AshdownComment