Friday, January 21

Trump Threat Hits German Auto Shares

Shares in German car makers BMW, Daimler and Volkswagen have fallen after US president-elect Donald Trump warned he would impose a border tax of 35 per cent on vehicles imported from abroad to the American market.

All three car makers have invested heavily in factories in Mexico, where production costs are lower than the US, with an eye to exporting smaller vehicles to the American market.

In an interview with German newspaper Bild, published on Monday, Trump sharply criticised the German car makers for failing to produce more cars on US soil.

“If you want to build cars in the world, then I wish you all the best. You can build cars for the United States, but for every car that comes to the USA, you will pay 35 percent tax,” Trump said in remarks that were translated into German.

“I would tell BMW that if you are building a factory in Mexico and plan to sell cars to the USA, without a 35 per cent tax, then you can forget that,” Trump said, adding that car makers will instead have to build plants in the US.

Mercedes-Benz and BMW already have large factories in the US, where they build higher-margin sports utility vehicles.

BMW shares were down 0.85 per cent, shares in Daimler were 1.54 per cent lower and Volkswagen shares were trading 1.07 per cent lower shortly in early trading in Frankfurt.

A BMW spokeswoman said a BMW Group plant in the central Mexican city of San Luis Potosi would build the BMW 3 Series starting from 2019, with the output intended for the world market.

The plant in Mexico would be an addition to existing 3 Series production facilities in Germany and China.

Daimler has said it planned to begin assembling Mercedes-Benz vehicles in 2018 from a $US1 billion facility shared with Renault-Nissan in Aguascalientes in Mexico.

Daimler was not immediately available for comment.

In 2016, VW’s Audi division inaugurated a $US1.3 billion production facility with 150,000 vehicle production capacity near Puebla, Mexico.

Audi said it would build electric and petrol Q5 SUVs in Mexico.

Audi was not immediately reachable for comment.

Trump went on to say Germany was a great car producer, noting Mercedes-Benz cars were a frequent sight in New York, but claimed there was not enough reciprocity.

Germans were not buying Chevrolets at the same rate, he said, calling the business relationship an unfair one-way street.

Senior German officials reacted with surprise and alienation Trump’s comments.

Such tariffs would make “the American auto industry worse, weaker and more expensive,” Sigmar Gabriel, Germany’s economy minister, told Bild.

Gabriel, who is also vice-chancellor, suggested more self-confidence in dealing with Trump.

He said: “We’re not weak and inferior.”

Responding to Trump’s complaint that German car makers do not behave fairly because a lot of German cars are seen in the US, but few American cars in Germany, Gabriel suggested the solution might be that “the US needs to build better cars”.

BMW said on Monday the company would stick to its plans to produce cars in Mexico.

“The production is aimed at the world market,” BMW said, according to German news agency DPA.

“Therefore the plant in Mexico will complement … the production plants in Germany and China.”

German Foreign Minister Frank Walter Steinmeier, who was in Brussels to meet NATO Secretary-General Jens Stoltenberg, said the president-elect’s comments had caused “surprise and anxiety” among members of the trans-Atlantic alliance.

 

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