By William Boston
BERLIN -- President Donald Trump's trade battle with China is
threatening the U.S.'s growing role as an auto exporter.
In recent years, BMW AG, Daimler AG and China's Zhejiang Geely
Holding's Volvo Cars have invested billions to expand U.S. factory
production with the goal of exporting a significant number of
vehicles to China and other markets world-wide.
But the tit-for-tat tariffs on U.S.-China trade could prompt the
manufacturers to rethink that strategy. On Friday, China raised to
40% its tariff on auto imports from the U.S. as part of a broader
retaliation against the Trump administration's move to impose
duties on $34 billion in Chinese-made goods.
BMW and Daimler are among the foreign auto makers that stand to
suffer the most from the move. Both German auto makers have massive
factories in the U.S. South that employ thousands of workers and
build luxury sport-utility vehicles for sale in the U.S. and export
to China and Europe. The tariff will force the companies to either
charge customers in China more or absorb the added costs.
Volvo Cars also opened a $1.1 billion plant near Charleston,
S.C., last month to produce its S60 midsize sedan for North
American markets. In the next three years, the company plans to add
an SUV model that will be sold domestically and exported, including
to China, and boost employment to more than 4,000 workers from the
current 1,200.
"Half of the 4,000 jobs will build cars for export," Chief
Executive Hakan Samuelsson said in a recent interview. "That could
be jeopardized if something were to restrict trade."
When BMW celebrated the 25th anniversary of its Spartanburg,
S.C., plant last year, CEO Harald Krüger praised the state for
welcoming the German auto maker with "open arms and warm hearts,"
and pledged to expand the factory and create another 1,000
manufacturing jobs.
Part of that expansion is now under way, as the company readies
production of its X5, the 10th X-series SUV model built in
Spartanburg since BMW first broke ground in 1992. Since then, BMW
has invested $8 billion in the plant, which employs 9,000 people.
It is the company's largest factory and a manufacturing hub for its
SUVs.
With the new expansion, the Spartanburg plant will soon be
churning out 450,000 vehicles a year, exporting around two-thirds
of them. It is a strategy that BMW has followed to base more
manufacturing costs in dollars -- limiting its exposure to currency
swings -- and to tap the growing SUV market in the U.S.
BMW last year sold 385,900 vehicles made at its factory in South
Carolina. Of those, 87,600 were shipped to China, while another
112,900 were sent to Europe. Any new vehicles BMW ships from its
U.S. factory to China will be subject to the 40% tariff, making
them more expensive than the models that rivals build in Europe and
then ship to China.
Daimler's Mercedes-Benz brand sold 340,000 vehicles in the U.S.
last year, a mixture of imports and vehicles produced at its plant
in Tuscaloosa, Ala. That plant is the global hub for the brand's
GLS, GLE and GLE Coupe models and makes C-class vehicles for the
North American market.
Around two-thirds of the roughly 300,000 vehicles made in
Tuscaloosa are exported around the world. Mercedes wouldn't provide
a regional breakdown on the exports.
"This is a favorable situation for us because the products from
manufacturers in the U.S. are becoming less competitive," Lutz
Meschke, the finance chief of German auto maker Porsche AG, said in
an interview last week.
Mr. Meschke estimated that prices for Porsche's Macan and
Cayenne SUVs could drop as much as 7% in China as a result of lower
border taxes, while similar products from BMW and Mercedes-Benz
could rise by as much as 15% in the wake of higher duties on their
U.S.-built vehicles.
BMW and Mercedes declined to comment.
The trade dispute is likely to have a broader impact on the
supply chain in the automotive industry. Even cars built in the
U.S. contain a large number of components built elsewhere, and the
same goes for cars built in Europe. The Trump administration, in an
apparent effort to gain better access for U.S. products, is
imposing or threatening tariffs not only against China, but also
Europe, Mexico and Canada.
"We have a very strong U.S. business, it's true, but the
delivery network is complex," said Wolf-Henning Scheider, CEO of ZF
Friedrichshafen AG, one of the world's biggest makers of
transmissions, which is based in southern Germany. "We produce
transmissions in South Carolina which we ship to European
customers, and we have similar transmissions coming out of European
plants going in the other direction."
Big auto makers have built global manufacturing and supply
networks that depend on the free flow of goods across borders.
These are now threatened by the trade dispute, which could force
companies to cut back manufacturing for export and make more
vehicles and components in the markets where they are sold.
"The strategy is going to continue to be global, but execution
is going to be more and more local," said Carlos Ghosn, chief
executive of the global Renault-Nissan-Mitsubishi alliance, which
is vying to overtake Volkswagen AG as the world's biggest car maker
by sales.
Write to William Boston at william.boston@wsj.com
(END) Dow Jones Newswires
July 10, 2018 05:44 ET (09:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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