Automakers likely to spread out tariff costs, analysts predict
President Donald Trump, who views the U.S. trade deficit in autos as negative for the economy, is considering across-the-board tariffs of up to 25 percent on national security grounds. Photo credit: Reuters
Automakers with domestic plants will seek to minimize the impact of potential U.S. tariffs on imported vehicles and auto parts by spreading the extra costs across their entire U.S. fleets, not just vehicles shipped from overseas.
Eric Kulisch RSS feed
Automotive News | July 16, 2018 – 9:31 am EST
WASHINGTON — Automakers with U.S. plants will seek to minimize the impact of potential U.S. tariffs on imported vehicles and auto parts by spreading the extra costs across their entire U.S. fleets, not just vehicles shipped from overseas, according to analysts at Baird Equity Research.
But other brands, such as Jaguar Land Rover, Porsche, Mitsubishi, Audi and Mazda that import all vehicles for the U.S., and their key suppliers, are most exposed to financial harm because they can’t mask the extra costs from tariffs, which would average about $6,000 per vehicle, the financial services firm said in a client note. It also mentioned Volvo as vulnerable to any tariff hike, although the Chinese-owned Swedish company is beginning production of its S60 sedan this summer at a new plant near Charleston, S.C.
President Donald Trump, who views the U.S. trade deficit in autos as negative for the economy, is considering across-the-board tariffs of up to 25 percent on national security grounds even though domestic auto manufacturers are thriving and oppose the idea. The Commerce Department is investigating whether auto imports undermine the U.S. manufacturing base and is expected to present recommendations to the president this summer. The department is scheduled to hear feedback on the proposal at a public hearing Thursday.
The Baird analysts estimate costs will increase $4,000 for the average vehicle sold by automakers with a mix of locally produced vehicles and imports — $1,000 for tariffs on nondomestic content in vehicles built in the U.S. and $3,000 related to vehicle tariffs themselves. Shifting some of the cost increase to domestic vehicles dampens the price shock on imported vehicles and potential decreases in demand.
Every brand can expect to face higher costs, but General Motors, Ford Motor Co, Fiat Chrysler Automobiles and Honda Motor Co. are best positioned to weather tariffs because they have the most vehicles built at U.S. assembly plants and their vehicles have the most U.S. content.
However, a 25 percent tariff is expected to scare off many buyers, lowering annual sales by 12 percent, or 2 million vehicles less than the 17.1 million vehicles sold last year, Baird said.
The estimate is in line with one from research firm LMC Automotive, which projects a 25 percent tariff on imported vehicles would reduce annual sales by 1 million to 2 million vehicles, depending on how tariffs are passed on to consumers.
Auto suppliers could face earnings reductions of about 15 percent because they will have to absorb about a third of the tariff costs and suffer along with their customers from lower vehicle demand, the investment bank said.
Some suppliers such as BorgWarner and Methode face less risk than others because a large portion of their business is with GM and Ford, according to the investment bank. Other suppliers, such as Littelfuse and TE Connectivity, would be partially insulated from the trade actions because they have diversified businesses with large nonauto revenue streams.
Suppliers most vulnerable to a trade war are Adient and Veoneer, because they provide components for many imported vehicles, and Gentex, which makes rearview mirrors that the European Union has included on a list of products it says could be subject to future retaliatory tariffs.
Aptiv, Delphi Technologies and Visteon are also at greater risk if Trump terminates the North American Free Trade Agreement because they have high Mexican manufacturing footprints.