Global car industry faces anxious wait on US tariffs

MT HANNACH
11 Min Read
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Car manufacturers are preparing for what could be an even more important shock for the global automotive supply chain than the pandemic covid in the duration and extent of the Donald Trump World Tariff War.

Only two days after the American president published an executive decree applying 25% prices to all imports of Canada and Mexico, as well as 10% on goods imported from China, Trump suspended the levies on Mexico imports For a month after a “very friendly” conversation with Mexican President Claudia Sheinbaum. Shortly after, Canadian Prime Minister Justin Trudeau also concluded an eleventh hour agreement with the United States for a 30-day break on prices.

Car manufacturers have been cautious to make significant and costly strategic changes without further clarity in the longer -term management of American trade and energy policy, although the managers of General Motors, Stellantis and Tesla have reported that they would increase Manufacturing in the United States to compensate for any impact of prices.

“If you are starting to react excessively, it’s a bit dangerous now,” said Michael Lohscheller, Managing Director of Polestar, the electric car manufacturer supported by Geely de China, in a recent interview.

What could be the worst case?

Many car leaders have turned to the experience of Trump’s first presidency in the risk of an international tariff war, saying that the American president had not focused on the threats of additional samples against his business partners.

Experts in the supply chain say that the worst case, in which American and reprisal prices are implemented, would be likely to lead to a chain of bankruptcy among suppliers of lower automotive parts.

The global automotive supply chain is so complex and interconnected that a component made in Mexico could be found in an American factory before returning to Mexico for the final assembly, then being sold on the American market – which could Train “a price-on- pricing situation.

“The mechanics are almost as bad, if not worse as the real amounts, because the accounting and accounting and paperwork requirements to guarantee compliance are massive,” said Ian Henry, an automotive production expert who manages the council autoanalysis manufacturer.

Henry warned that the disruption of the supply chain could be worse than during the pandemic if a priced war and that the manufacturers were unable to provide sufficient financial support to keep their suppliers afloat.

Mikael Bratt, director general of the Swedish seat belt and the Airbag Autoliv manufacturer, said that it would immediately start discussions to pass the cost of higher prices to customers if they were implemented against Mexico.

“There is no reason why we. . . Absorb all cost like that, “said Bratt in a briefing on results last week. “In the end, this will be a higher cost for vehicles sold in the United States.”

Which car manufacturers are the most exposed?

Traditional car manufacturers of “Big Three”, which have spread their imprint through the continent since the 1994 signing of the North American free trade agreement, are the most vulnerable to success in profits. GM was the most exposed, analysts said, with the owner of Chrysler, Stellantis, not much better. Ford is the least exposed because it is important the smallest share of vehicles from outside the United States.

GM manufactures its popular high margin Silverado chevrolet in its Silao factory in Mexico and Oshawa in Canada, which increases its exhibition. BNP Paribas analyst James Picariello said that even if the automaker could probably move production in the United States for around 300,000 of the 350,000 trucks that are currently important, such a switch would take 12 to 18 months because It adjusted supplier shipments and hired workers.

This would add about $ 1 billion in labor costs, he said, as workers have won more in the United States than in Mexico. GM operating profits would take a sure blow of 7%, but it seemed favorable compared to a possible 50%reduction which could come from a price of 25%.

“A billion dollars face seems to be a manageable scenario at the moment,” said Picariallo.

Investors and analysts assumed that any price on the goods of Canada and Mexico would ultimately be negotiated, he added, because otherwise “the figures become too large for the industry to survive properly”.

Are German car manufacturers spared if the prices are not imposed against the EU?

Even before any price against the EU, European car manufacturers are exposed. Volkswagen is in the worst position, with 45% of its American sales from cars manufactured in Mexico and Canada, although the American market represents a small part of the total turnover of the group.

With all the American vehicles of its luxury Audi and Porsche brands made outside the country, Moody’s estimates that a 25% Mexican rate will reduce the world profits of the Volkswagen group before interest and taxes by more than 15%.

“We have a factory in Mexico and, regardless of which the administration is at work, our plan is to become stronger in the United States,” said Audi Director of Audi, Gernot Döllner last month. But he added: “We think the prices are false and we believe in free trade.”

The German driver BMW is less exposed because 65% of his cars in the United States are built locally while it is also a net exporter of the United States.

“There may be volatile situations that could be less predictable, but I am really optimistic” in the United States, said Jochen Goller, member of the BMW board of directors in charge of customers, brands and sales. “I think it will be one of the growth markets for us in the next year.”

Will Tesla emerge as a winner of Trump prices?

Investors have pinned the hope that Elon Musk’s close ties with Trump will protect Tesla from the impact of president’s policies, but the largest electric vehicle manufacturer in the world is still exposed.

Tesla assembles all its vehicles sold in the United States locally, but it supplies 20 to 25% of its components for model 3, the Y model and the Mexico Cybertruck, according to Barclays.

“Over the years, we have tried to locate our supply chain in all markets, but we are still very dependent on the parts around the world for all our businesses,” said financial director Vaibhav Taneja last week during From a briefing on profits, warning of a profitability of Trump’s prices suddenly.

The company could also be a target of reprisals by Canada. Former finance minister Chrystia Freeland, who presents himself to replace Trudeau as Prime Minister, said that Ottawa should fight back against American prices by adding huge samples from Tesla vehicles to punish musk.

The tariff war also arises while Tesla is grouping with a drop in sales in Europe due to the slowdown in demand from electric vehicles, increased competition and a reaction of consumers against Musk’s political activism.

According to the French Industry Association The Automobile Platform, Tesla’s January sales in France were 63% lower than one year earlier.

Which car manufacturers are the least exposed?

The smallest Japanese car manufacturers, such as Mitsubishi Motors and Subaru, could benefit from a lack of production in Mexico and Canada. Honda is also relatively well placed, because two thirds of its American sales are assembled locally, according to Barclays.

Takao Kato, Managing Director of Mitsubishi Motors, told journalists on Monday that the prices would have little impact on the company and that he could even receive a slight “rear wind” of increased exports to the United States if the prices Were not extended to the rest of Asia.

However, he later withdrew his commentary, claiming that “in balance, it seems that there are more opposite winds”, and said that Japan could benefit from it if he managed to get rid of the target of heavy prices.

Renault is also unlikely to be affected because it has no sales in the United States or Canada. The actions of the French car manufacturer fell 0.6% on Monday, well below the falls suffered by other European car manufacturers with greater exposure to the United States.

Renault, one of the few European brands not to issue a profit warning last year, was to “manage very well” in Europe, “said Stephen Reitman, analyst at Bernstein. The company’s exhibition at the prices is done through its participation in Nissan, which is currently continuing a merger with Honda.

But while the company is less exposed than its competitors, Reitman added: “There are not many winners in all of this. . . This reduces wealth, which reduces GDP, which reduces car sales. »»

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