By on February 10, 2017

2015 Volkswagen Jetta TDI, Image: Volkswagen of America

A border tax placed on Mexican goods bound for the United States would be a worst-case scenario for struggling Volkswagen.

The automaker, which already knows a few things about worst-case scenarios, is waiting on pins and needles to see if the proposed tax prices its small cars out of the market.

Mexican manufacturing has been a boon to VW. Its Puebla assembly plant, surpassed in size only by its hometown plant in Wolfsburg, cranks out Jettas, Beetles and Golf variants for various markets, including America. Last year, 60 percent of the brand’s U.S. volume crossed the Texas-Mexico border.

Building its compact cars in Mexico not only saves the company money, it allows VW to offer the models for a reasonable price (even though domestic and Japanese rivals undercut the vehicles’ MSRP). President Donald Trump’s tentative 20-percent border tax could throw the whole operation into disarray, adding costs that would need to be recovered through sticker prices. Executives and dealers now worry the maligned brand’s post-emissions scandal comeback is in danger of fizzling.

“It would be catastrophic,” Fred Emich, general manager of a Denver, Colorado dealership, told Automotive News. Emich said that VW prices already top that of its competitors, meaning few people would pay more for the same product.

Research company Baum & Associates LLC recently tabulated what such a tax would mean for vehicle MSRPs. Volkswagen, which relies heavily on Mexican manufacturing, didn’t fare well. On average, the markup would be $5,800 per vehicle.

A base Jetta carries a $17,895 MRSP in the U.S., while an entry-level Golf goes for $19,895. VW’s new Golf Alltrack is already a price heavyweight, at $26,950. Should the company’s worst-case scenario occur, VW might be looking at a Jetta that retails for as much as — or more than — a U.S.-built midsize Passat (which carries an MSRP of $22,440). The Golf Alltrack could enter Audi territory.

Of course, several other foreign rivals would see increases of their own, as VW doesn’t exist in a vacuum. However, domestic automakers would only very minor increases, at least compared to companies like VW. That would mean an instant leg-up for many Detroit Three models.

A solution would be to simply build more vehicles in the U.S., but that isn’t so simple. Thanks to the diesel emissions scandal, which carried a price tag of about $23 billion in the U.S., VW doesn’t have much cash to play with. The automaker is counting on a sales turnaround to boost its fortunes.

The diesel deception also didn’t help favorable attitudes towards the company in the halls of government, so asking for special treatment seems like a long shot.

[Image: Volkswagen of America]

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27 Comments on “Volkswagen Fears Pricey Jettas as Thorny Mexico Trade Talk Continues...”


  • avatar
    Tosh

    One idling VW made all that smog?

  • avatar
    Ol Shel

    I don’t see the Tennessee Republicans voting to penalize VW.

    I doubt that there will be any tariffs at all. See, even if the tariffs don’t happen, his supporters will believe they did, and that’s what matters in politics.

    • 0 avatar
      jacob_coulter

      Why?

      You do know that workers at the TN plant probably be sitting pretty if there was a renegotiation of NAFTA.

      • 0 avatar
        derekson

        Yes, the TN plant would almost certainly see further investment if tariffs happen.

      • 0 avatar
        Ol Shel

        Again, why do you think that the Republicans (who encouraged the corporate move to Mexico) are going to now penalize the companies that previously gave millions to their campaigns?

        Do you now believe that the conservatives no longer believe in high corporate profits and low wages?

        Do you think that they are willing to risk losing that campaign cash?

        Do you think Trump undoes decades of GOP philosophy? The money doesn’t come from Trump and it doesn’t come from Trump voters; it comes from massive corporations and Big Church. They need that money and they know what they have to do to keep getting it.

        • 0 avatar
          zerofoo

          Politicians only care about one thing – re-election.

          If populist support for re-election means throwing NAFTA on the fire – politicians will stab everyone of their donors in the back. Donors mean nothing without winning elections.

          Hillary had lots of wealthy donors – I suspect none care about her at all now.

  • avatar
    deanst

    Aren’t the Sentra, Cruze hatchback, mazda3 and Forte also made in Mexico? VW is not unique with this problem.

  • avatar
    jalop1991

    Solution: send Honda and Toyota some VW badges, and say “pretty please”.

    Hey, Mazda did it with Toyota. Or something like that. OK, Toyota wanted the Mazda 2. Anyway, VW has a history of this stuff–witness the Dodgewagen minivans.

  • avatar
    GeneralMalaise

    “Pricey Jetta”… Isn’t that a bit like “jumbo shrimp”?

  • avatar
    MatadorX

    I can’t wait until VW suffers at the hand of tariffs.

    Yet to be honest I really think Trump should be going after Ford, Ford, and more Ford. NO ONE has outsourced their entire operation, suppliers up, with such vigor south of the boarder as Ford.

    Every single car they “assemble” here has a massive number of Mexican made parts, to the extent that many use just as many Mexican sourced parts as they do Domestic even if built here. Words can not describe just how “about” making all their parts in Mexico Ford is. Its incredible.

    Source: I am a mechanic, and see country of origin on the many OEM Ford and Motorcraft parts we get in. They are at least 70% Hecho, even though other than the odd Fusion, we primarily deal with US built models. I also have first hand account of the defect rate on these parts, being far and away above those of parts made domestically.

    Stop making garbage down there, if a tariff is what it takes than so be it. I literally can not remember the last time a Japanese or USA made Toyota part last failed resulting in a come-back…oh wait I remember now…it has literally never happened.

    • 0 avatar
      kvndoom

      What you just described is the loophole that will get exploited if it isn’t acknowledged.

      MADE IN USA!!!

      (…from domestic and imported parts)

    • 0 avatar
      ect

      Ain’t gonna happen. The business community will be up in arms over the prospect of ending NAFTA, and rightly so. The cost to all 3 economies – including the US – of unwinding NAFTA would be enormous. And would be paid (like everything is) by consumers.

      After all the bluster, there will be a few tweaks so Trump can claim victory, and life will go on.

      And to claim that a Japanese- or US-made Toyota part has never failed is beyond silly.

  • avatar
    TDIandThen....

    Wondering whether it would be cheapr for VW to ship to Canada for final assembly and then to the US. Let the shenanigans begin!

  • avatar
    Joss

    Versa does make up significant MX volume.

  • avatar
    Wheatridger

    Wouldn’t it have been useful to list all the cars made in Mexico, from all the makers, and their numbers? That would have required a little research, I know. Easier to feed this gang what they want- this site’s readership has hated on VW since years before the diesel fiasco.

    Now wouldn’t we all be better off without having fuel-efficient cars with turbos, independent rear suspensions and some handling prowess, available for a $150 lease payment? I thought you’d say yes. German engineering should belong to the winners who can pat BWM/Merc prices, right?

    • 0 avatar
      gtemnykh

      “Wouldn’t it have been useful to list all the cars made in Mexico, from all the makers, and their numbers?”

      GM would be beyond screwed with all their crewcab half tons coming from South of the border. Arguably much worse off than VW since those are GM’s cash cows, and quite literally the second best selling vehicles in the entire country (spread across all cab/bed configurations).

  • avatar
    agent534

    VW’s Qatar owners can stop funding ISIS and terrorism and divert some of that money to building VW factories in the US.

    Buy VW and support terrorism, or slap a tariff on VW’s made in Mexico and decrease the money Qatar can send to terrorists. I don’t see any issue or question here. Not for Trump, the rest of America, or the rest of the world.

  • avatar
    zerofoo

    VW made this bed – they can lie in it.

    Overpriced products with shoddy reliability – made in Mexico – all while cheating emissions standards.

    If VW’s management wasn’t so arrogant, they might have paid attention to the populist wave that resulted in Brexit – and started making contingency plans for North America.

    But no – VW management always believes they are right and have considered all the contingencies – and it’s blowing up in their faces.

    Tough cookies VW. Had you honestly built reliable, competitively priced products in the US, your situation might be better today.

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