U.S. Auto Makers Sweat Under Threat of Tariffs on Mexican Imports
May 31 2019 - 9:37AM
Dow Jones News
By Mike Colias
President Trump's threat to impose escalating tariffs on Mexican
imports foists fresh bad news on the U.S. auto industry, which had
pinned hopes on a tentative deal reached last year to preserve free
trade between the countries.
For Detroit's Big Three auto executives, the prospect of tariffs
on Mexican imports has been the most worrisome of the trade threats
leveled by Mr. Trump during his presidency. Mexico-built cars
accounted for 17% of Detroit auto makers' overall U.S. sales in
2018, including some of the industry's biggest money makers, large
pickup trucks.
The tariffs also would hit foreign car companies and automotive
suppliers. Overall, the U.S. imported $52.6 billion of vehicles and
$32.5 billion in auto parts last year from Mexico, the highest
totals of any country, according to Commerce Department data.
Mr. Trump on Thursday said the U.S. would implement a 5% tariff
on all Mexican imports June 10 if the country doesn't take steps to
stem the flow of migrants over the U.S.-Mexico border. That tariff
would rise gradually to 25% by October.
The companies declined to comment Friday on Mr. Trump's threat.
The Alliance of Automobile Manufacturers, which represents about a
dozen major auto makers including the Detroit car companies, also
declined to comment.
General Motors Co. is among the most exposed to fresh tariffs on
Mexican-produced cars. GM sold about 663,000 Mexico-built vehicles
in the U.S. last year, or 22% of its domestic sales, according to
an estimate from research firm LMC Automotive.
GM's lucrative Chevrolet Silverado and GMC Sierra pickup trucks
-- which combined are its top-selling U.S. vehicles and biggest
global profit generator -- would be hard hit. This year through
April, Mexico accounted for about one-third of GM's production of
the trucks, according to WardsAuto.com.
About 18% of Fiat-Chrysler Automobile NV's U.S. sales were
imported from Mexico last year, including about a quarter of its
profitable Ram pickup trucks. Ford Motor Co.'s Mexican imports
accounted for about 10% of U.S. sales, according to LMC.
Even the initial 5% tariff, if enacted, could trim earnings by
as much as 10% on an annualized basis for the most exposed auto
companies, including GM, Fiat Chrysler and suppliers such as seat
maker Lear Corp., Evercore ISI estimated in a research note
Friday.
Auto stocks fell sharply in premarket trading, including a 5%
drop in shares of GM and Fiat Chrysler.
Tariffs on auto parts from Mexico also would squeeze the
industry. Both foreign and U.S. auto makers have established
extensive supply chains in Mexico during the 25 years since the
North American Free Trade Agreement took effect. Some parts cross
the border multiple times before making their way into a finished
automobile.
Some of the Detroit auto makers' U.S. vehicles are made with
significant numbers of parts shipped in from Mexico, and tariffs
would raise costs for those models. For example, the Cadillac
Escalade, Chevy Suburban and GM's other large sport-utility
vehicles are built in Texas, but nearly half of the parts used to
assemble the SUVs come from Mexico, federal data show.
Foreign auto makers also have taken advantage of Nafta by
opening new Mexican plants to supply their U.S. dealerships and
would be hurt by fresh tariffs. For example, nearly half of
Volkswagen AG's U.S. sales last year were imported from Mexico,
according to LMC.
Auto executives last fall lauded the Trump administration's
tentative deal to revise Nafta. The new trade pact, still subject
to congressional ratification, maintains tariff-free trade among
the U.S., Mexico and Canada while raising the amount of a car's
content that must be sourced in North America to avoid tariffs.
Those changes could raise costs for car companies by forcing
them to rejigger their supply chains to comply with the new
thresholds, analysts have said. Still, Mr. Trump had threatened to
scrap Nafta altogether, a prospect that executives have said would
be disastrous, forcing them to raise vehicle prices and putting
billions of dollars in profits at risk.
Auto executives have complained that the mere prospect of future
tariffs has stalled decisions on capital investments in factories
as they wait to see how Mr. Trump's trade policies -- and potential
retaliation from trading partners -- shake out.
"We can only decide what we have to do once we know exactly what
will be the decisions of the U.S. administration, which nobody
knows," Jacques Aschenbroich, chief executive of French parts
supplier Valeo SA, said last summer when asked by analysts how
future tariffs could affect investment moves.
(END) Dow Jones Newswires
May 31, 2019 09:22 ET (13:22 GMT)
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