VW, BMW Shares Fall After Trump Auto Tariff Threat.
But Experts Call It A Bluff.
German auto stocks dived initially after news President Trump threatened to impose extras tariffs on European auto imports, but it was hard to find experts who took the claim seriously.
It was viewed as the opening gambit in a move by Trump to tackle some egregious trade deficits. He made the comments in a weekend Tweet. https://twitter.com/realDonaldTrump.
According to German Federal Government statistics, Germany’s auto trade surplus with the U.S. was 49 billion euros ($60 billion) worth of mainly VWs, Audis, BMW, Mercedes and Porsches in 2016. Britain’s was just over 50 billion euros, led by Jaguar and Land Rover, with a bit of help from McLaren, Bentley and Rolls Royce.
If Europe starts protesting about higher tariffs, no doubt the U.S. will remind it that the U.S. tariff is currently only 2.5% on Europe’s auto imports compared to Europe’s 10% tax on U.S. car exports. That is an anomaly that’s needed to be corrected for years.
Investment researcher Evercore ISI said Trump’s tariff thoughts were an opening gambit, but BMW, Daimler and VW were the most exposed.
“At the moment, we presume that (this) is merely sabre rattling. However, were it to materialize into policy the greatest financial impact would likely be at BMW, followed by VW and Daimler. While VW has the lowest percentage of U.S. sourced vehicles at about 17% compared with 46% at Daimler and 35% at BMW, it is well known that the U.S. earnings contribution to VW brand is de minimis,” said Evercore ISI analyst Arndt Ellinghorst.
Professor Ferdinand Dudenhoeffer from the Center for Automotive Research (CAR) at the University of Duisberg-Essen thinks the Trump comments are a bluff, but doesn’t think they would do much damage even if a harsher tariff regime was imposed, and would hurt U.S. car buyers too.
Dudenhoeffer said of the 17.25 million vehicles sold in the U.S. last year, 11.3 million were made there and about 6 million or 35% were imported. A 30% general duty would hurt U.S. domestic buyers too. Fiat Chrysler sold more than 920,000 vehicles in the U.S. that were made abroad, or more than 45% of sales. The tally for General Motors was 762,000 cars, or over 25% of sales.
And some Germans wouldn’t be hurt that much.
“In a scenario in which all car imports from the E.U. would be penalized and export vehicles produced by German car makers in the U.S. could not be offset, this could mean a 10% drop in profits for the German auto companies,” Dudenhoeffer said.
Dudenhoeffer pointed out that Jaguar Land Rover and Volvo have no production in North America, yet.
Evercore ISI analyst Ellinghorst said Porsche wouldn’t be hurt much because it had strong pricing power. Daimler and BMWs not made in the U.S. might struggle though.
“Meanwhile, we believe that Porsche has a strong chance of pricing through any incremental duties, at least partially, and the U.S. is less material to Audi than its peers. In contrast, though Daimler and BMW make significant SUV volumes in the U.S., the U.S. is also an important market for their sedans, coupes and sports cars, all of which we believe make attractive returns in the US.,” Ellinghorst said.
VW lost 2.33% in European trading and BMW lost 1.56%, according to Reuters data..