Thanks to Trump, the cars will be more expensive in the USA
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Dark Future of the Auto Industry

BMW 4 Series Coupe

Dark Future of the Auto Industry

For weeks now, the USA has been discussing penalties for the cars from Mexico. Economists have now calculated which manufacturers would be burdened as a result of such an act. According to the reports, specifically German manufacturers including BMW, Mercedes and Audi will be affected. The new US president, Donald Trump, has never looked to the industry as often as the auto sector. Anyone who wants to produce vehicles in Mexico in the future will have to pay a penalty.


While most automakers emphasize the need to wait and see what Trump is actually doing, the analysts of the Swiss bank UBS have already calculated what a penalty and an import tax on products from Mexico would mean for the individual manufacturers. The result shows that in most of the cases a price increase is expected. The entire industry would have to face serious consequences, especially the German manufacturers would be particularly hard hit. Moreover, UBS highlights that among those manufacturers, the Volkswagen Group will be affected the most.



The calculation of the Swiss analysts is extremely complex, as the study takes into account not only the number of cars imported, but also the proportion of the components imported from Mexico. The Bank’s study involves two scenarios: a general penalty and a so-called Mexico tariff, which would be an import tax of 35 percent on products imported from Mexico. Trump wants to refinance the announced construction of the border wall. The penalty would therefore mean that every car in the US would cost an average of $ 2500 more, which would be a price increase of about eight percent. The analysts assume that the rising costs of the manufacturers over the price to the customers are passed on.


Based on the experience gained with previous price increases in cars, the professionals expect the increase of eight percent would result in the sale of a total of two million vehicles less in the US. But not all manufacturers would be affected by the tariff. Trumps’s intention is to strengthen the importation of the three major American manufacturers General Motors (GM), Ford and FiatChrysler, according to the study. Because of their higher share of local production in the USA, their costs would rise less sharply than most competitors. Surprisingly, however, it is not only the American manufacturers who would benefit but also Honda and Toyota, which also make a large part of the vehicles sold in the USA locally.


According to UBS, these five manufacturers have an advantage of around 600 dollars per car compared to the competitors, whose costs increase more. The most favorable scenario would be Honda’s cost savings of 4.3 percent, followed by FiatChrysler (up 6.3 percent), GM (up 6.8 percent), Ford (up 6.9 percent) and Toyota (up 7.3 percent) . All other manufacturers are above the average of 8.4 percent higher costs. This scenario is particularly gloomy for the German car makers. For VW, the penalty will increase the price of the models by 17.2 percent in the US, while analysts expect 17.2 percent increase for BMW, 16.3 percent for Audi ( with which Audi will be probably struggling ) and then, 13.4 percent for Daimler . The absolute backlight would be Mazda with a markup of 18.2 percent.


A somewhat different picture emerges when one considers the effects of an import tax on goods from Mexico to finance the border wall. Here, according to the study, the US car porters were even above-average. With an import tax of 17.9 percent, VW will be placed in a worse location than its rivals as it is expected them to have significantly less price increases. On average, a 35 percent import tax would mean a cost increase of 4.6 percent for all car owners. In addition to VW, this rate for the US manufacturers are 7.3 percent for GM, 6.5 % for FiatChrysler,  6.3 % for Ford and 7.8 % for the Nissan. The remaining German manufacturers would be under-rated or even non-existent.



For Audi, the cost would only increase by 0.4 per cent, for Daimler by 0.6 per cent and for BMW, it would be no increases at all. However, this is a snapshot, which is mainly due to the fact that BMW and Daimler have not yet produced vehicles in Mexico. This is expected to change in the coming years, however, both manufacturers are planning factories there. The particularly significant burden for VW is created because, according to UBS, not only 59 percent of the vehicles sold in the USA are imported from Mexico, but also up to 29 percent of the parts in the the cars, that are built in the USA, come from Mexico. The analysts believe, however, that the high import ratio of VW cars to the US will decline in the coming years, as the new Tiguan and the SUV Atlas will be produced locally in America.


However, according to the UBS, there is a hope for all the automobile makers that maybe it does not come to the punishment, which Trump has announced. The bank is currently estimating the likelihood that the customs will end up in a tax reform bill, currently below 50 percent. It is likely that there would be a majority in the US House of Representatives, but in the Senate the project would probably not work, the analysts believe. The main reason for this was that the builders would use their influence over lobbyists to prevent the penalty.

Jack Goodman

Founder & CEO of BrightTitan

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