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'Chicken Tax' Talk Revives as Auto Makers Strive to Sell More Pickups

The Wall Street Journal. logo The Wall Street Journal. 1/11/2017 John D. Stoll and Adrienne Roberts

DETROIT—A half-century-old clash over chicken exports is cropping up in conversations at the Motor City’s car show this week as auto executives hash out their responses to President-elect Donald Trump’s pressure on U.S. companies manufacturing goods abroad. 

The annual auto extravaganza has become more of a truck-fest, with low gasoline prices prompting manufacturers to launch revamped versions of pickups and hefty wagons. U.S. and foreign auto executives say elimination of the “Chicken Tax,” a 25% tariff on pickups and work vans imported to North America from other regions, could boost supplies of these profitable vehicles and offset wilting demand for sedans.

The name of the tax comes from a trans-Atlantic trade dispute in the early 1960s. European countries including the then-West Germany taxed chickens imported from the U.S., and President Lyndon B. Johnson retaliated with a tariff that included pickup trucks made by the likes Volkswagen AG and others.

Subject to the duty for decades, auto makers have either built all pickups and work vans in North America to avoid the tax, or shipped stripped down versions of those vehicles from Europe and Asia and completed assembly on U.S. shores. Even though 1994’s North American Free Trade Agreement—a frequent target of Mr. Trump’s ire—allows auto makers to build these vehicles for the U.S. market in Mexico and Canada, deep-rooted U.S. manufacturers have maintained their dominance.

Many analysts say the Chicken Tax has protected U.S. jobs. But the tax also has limited options for buyers and likely hurt the overall fuel-economy opportunities for light trucks, said Dan Ikenson, director of trade-policy studies at the Cato Institute.

Ford Motor Co., Volkswagen, Mitsubishi and other auto makers have long built efficient and sporty pickup trucks on foreign soil—including a large amount in Thailand—and refused to take a hit to put them in American showrooms.

Daimler AG is preparing a new Mercedes pickup to be built outside the U.S., but Chief Executive Dieter Zetsche told reporters Monday the product isn’t right for the U.S. American truck buyers routinely spend more on Ford F-150s than they do for most German luxury sedans, so Mr. Zetsche will monitor the situation.

Ford plans to refurbish a Michigan plant where it currently builds small cars so it can eventually build the Ranger pickup on U.S. soil to avoid the tariff, but that will take another two years. Ford was going to move those small cars to a new factory in Mexico, but scrapped that $1.6 billion plan in response to pressure from Mr. Trump.

Volkswagen is currently researching ways to bring its rugged Amarok pickup to the U.S. to help spark demand for a brand tarnished by an emissions scandal and criticized for not making cars Americans want. A spokeswoman said the more immediate focus is on ramping up SUV supply.

One company hit especially hard by the Chicken Tax is Mitsubishi Motors Corp. The Renault SA-Nissan Motor Co. alliance recently took controlling interest in the auto maker and a big priority is finding success in a U.S. market where it has more than 300 dealers but sells fewer than 100,000 vehicles a year.

Those dealers are more profitable than they were a few years ago thanks to some new products and operational tweaks, but they need a jump-start to be viable over the long term. Mitsubishi last year closed a plant in Normal, Ill., and has said the partnership with Nissan is a reason for hope.

Dealers say they want their hands on the Mitsubishi Triton pickup truck the auto maker sells elsewhere and builds in Thailand.

“It’s at the top of the dealer wish list,” Mitsubishi ‘s North American operating chief, Don Swearingen.

2017 Mitsubishi Triton© Thiago Moreno, de Mogi Guaçu (SP) / Fotos: Divulgação Mitsubishi 2017 Mitsubishi Triton

The Japanese auto maker isn't participating in the formal auto show. But at a private event before the kickoff of the Detroit auto show, Mr. Swearingen said he has to tell those dealers no. Why? “The Chicken Tax.”

He said one option would be to work jointly with Nissan, which has ample U.S. pickup-truck production capacity and is eager to maximize its Mitsubishi investment, even if the two brands remain competitors.

Dealers are “foaming at the mouth” for the truck, Ryan Gremore, general manager of O’Brien Mitsubishi in Illinois, said.

At a meeting with Mitsubishi’s executive board at its U.S. headquarters in Cypress, Calif., in November, dealers were asked, “If you could have one Mitsubishi vehicle in the U.S. that’s not here now, what would you pick?” he said. The dealers unanimously said the Triton.

“I hope they are going to find a way to get it done,” Mr. Gremore said.


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