Donald trump criticized BMW, Daimler and Volkswagen because they are building factories in Mexico and not in USA. As punishment, he promises to introduce unprecedentedly high duties on imports of German cars from Mexico. Thus trump can do to ensure the prosperity of their own industry, as promised. However, Angela Merkel is unlikely to enjoy that this will be done at the expense of the German automotive industry.
Trump has criticized German automakers in an interview with German newspaper Bild, published on Monday. “Do you want to produce cars around the world? I wish you all the best. You can collect cars for the United States, but for every car imported into the United States, you will pay 35 percent tax,” said trump, in his speech, which was translated into German.
“We cannot exclude that the Europeans in response to trump’s put up similar duties on the import of American cars”
“I would like to say a BMW. If you build a plant in Mexico and plans to sell cars in the United States, without a 35% duty you can forget it,” said trump.
Thus, the trump, who will officially become President of the United States on January 20, confirmed their intentions to raise tariffs on imported cars, and just 35%. In fact, it’s prohibitive duties. The worst fears of the German automotive industry can become a reality. Shares of BMW, Daimler and Volkswagen on the Frankfurt stock exchange fell immediately after such statements trump.
All three of the German automaker has invested heavily in production in Mexico. They open factories there, and not in the US, to reduce production costs. The main objective of these companies is exporting to the largest car market: the us. The strategy for trump to force automakers to build factories in the USA. Local companies are easier to persuade him – Ford, for example, has declared that refuses plans to build a plant in Mexico. But Europe has not yet left hope that the actions of trump, in practice, may be all is not as abrupt and harsh as in the middle of the race. But, apparently, they were wrong.
The war trump with the German automotive industry is understandable. Unemployment in the automotive sector the US is far from pre-crisis level of 2008. For the period from 1994 to 2013, the number of jobs at U.S. plants dropped by a third, while in low-wage Mexico in the same period the number of jobs grew by nearly five times. Trump wants the reverse situation.
BMW has planned to invest $ 2.2 billion in the construction of a plant in Mexico with capacity of 150 thousand cars a year. From 2019 there should begin to produce BMW 3-series for the world market. The plant in Mexico should become an addition to the existing two other factories in Germany and China.
At Daimler planned to start assembling Mercedes-Benz cars in Mexico in 2018, investing $ 1 billion together with Renault-Nissan.
Audi, a unit of VW, last year managed to open in Mexico a plant with capacity of 150 thousand cars a year, investing us $ 1.3 billion. And produce there an electric and petrol SUVs the Audi Q5.
According to experts, because of the new duty rates on passenger cars of German brands are assembled in Mexico, can fly up to 5 thousand dollars. In fact, the duty of 35% are defensive. They can easily put an end to the Mexican plants, which are unlikely in this situation will be able to pay off. Most likely, BMW and Daimler will have to freeze construction. This means not only direct losses from investments and preparations for the construction of plants, but also the loss of potential profits from future sales of cars in the American market.
The German car industry has incurred losses due to “disilicate”. Under arrest is a top Manager of Volkswagen’s Oliver Schmidt, who is accused of manipulating environmental standards. He faces up to 169 years imprisonment. In the autumn of last year, Volkswagen had to pay $ 1.2 billion to dealers in the U.S. who have suffered because of the scandal with understating of the characteristics of engines on emissions.
However, the position of the German automobile industry on the American market can not be called strong. “Americans are generally quite Patriotic in terms of buying cars. They prefer mostly the American brands, on the second place in popularity – the Japanese. The German brands are far behind, they are not as popular as, for example, in Russia, they buy only a few connoisseurs”, – says Sergey Zvenigorodsky from UK “solid Management”.
To convince Americans to buy German, the same VW went to various tricks and suggestions to them. In 2015, for example, the group suggested that the Americans take the car to a Jetta lease for only $ 89 per month. It was enough to pay a one-time initial contribution of $ 2,500. However, various marketing campaigns still not much help to the concern. Its sales in the United States continued to decline, while the overall market grew.
So, at the end of 2016 the car market in the U.S. grew about 1%, it has sold over 17.6 million new passenger cars (for comparison, in Russia – about 1.4 million units). The best-selling brand is not the first year is Ford. European brands last year showed zero growth, and the share of VW – and not a negative trend. With VW go bad already not the first year, including from-for scandal with “desligada”. The exception among Europeans is the only Volvo, whose sales rose 18%.
“The introduction of such a tax on the import of European brands can become a very real obstacle and the declining share of these cars in the American market. This may exacerbate their already precarious situation, because last year none of the major brands, which “threatens” the tramp, not even in the top ten best selling in the USA”, – said Kirill Yakovenko from “ALOR Broker”.
On the one hand, Trump will be able to force the Germans to freeze the plants in Mexico or working on the edge of survival, on the other hand, German companies are unlikely to open new plants in the US. “This is a very unlikely situation, as companies have been investing heavily in Mexican production, and given that sales only falling, it will be a very inefficient use of resources,” says Yakovenko.
This means only one thing. The position of the German automakers in the U.S. will continue to weaken. The US market will be completely reclaimed by the local manufacturers – Ford, General Motors and Chrysler. If trump will not go into the fight with Toyota, which also shows good results, then the Japanese will retain the American market.
“I think the American auto industry, getting good support from the state, can do to produce new models and to build on this advantage”, – says Sergey Zvenigorodsky.
However, Trump will not be able to kill the German auto industry, Yes he is, and is not aimed. even though the diesel scandal, VW 2016 has become the world leader on sales of cars, showing the best result in the history of the company. According to focus2move, last year, Volkswagen increased the realisation by 1.4% to 10,102 million cars. Toyota, which topped the world ranking of sales in the previous four years, slipped to second place with 9,947 million cars. In third place is the Renault-Nissan Alliance, 8,513 million cars. Followed by Korean carmaker Hyundai-KIA, which sold 8,175 million. The top five world leaders in General Motors with record 7,972 million cars.
Volkswagen took the lead thanks to the fact that it still keeps the leadership in the European market and is actively developing in Asia. So, in China in 2016, the group sold 12% more cars than a year earlier. And the Chinese market for many years as surpassed the us and become the largest car market.
It is possible that the Europeans, in response to trump’s put up similar duties on the import of American cars says Zvenigorod.
Merkel shocked by trump
“Merkel, of course, in shock from how trump will guide economic policy. She seriously feared that the idea and the principles of free trade will be called into question,” – said the newspaper VIEW, the German scientist, scientific Director of the German-Russian forum Alexander Rahr.
“For the German car-this is a huge blow. The American market was their most important. Now still under shock from what has been said” – said the analyst.
“Germany is a small country, she can’t produce so many cars for Germans, especially German cars in competition with French, Japanese, Chinese and Korean. So for Germany, the closure of foreign markets is a disaster, this is a terrible blow to the automotive industry,” stated PAP. After diesel VW scandal, “in which defiled the image of the German automotive brand in America, a blow to the other German manufacturers on the us market is perceived in Germany as a complete shock,” the expert added.
Trump threatens to suspend, close and deny much of what existed before, including the creation of a transatlantic free economic zone, which hoped the Chancellor of Germany. While many still have hope that this is just words, and in practice, trump won’t act so tough. However, PAP does not agree. “Trump will do what he promised to his electorate. It will create jobs in the first place in America, it will strengthen American industry, will force Americans to buy American cars, not German. And will thus create the best conditions for the Americans in the economy”, – the expert believes. America may indeed be policy to strengthen itself, and to completely pull out of the financial crisis, he added.
That’s just Europe understands that this will be done at the expense of others – including at the expense of Europe itself.