#Tariffs

The fresh threat of new automotive and parts tariffs from the United States has everyone up in arms. We recently published an exhaustive list of comments manufacturers and local governments made to the U.S. Commerce Department. They, along with suppliers, universally despise the idea and are doing everything in their power to convince the Trump administration to reconsider. Many are even discussing the grim prospect of layoffs and suspending investments.

However, the president remained firm on doing whatever it takes to bolster domestic production and U.S. automotive exports while the world tried to make sense of his strategy. Was this a madman playing hardball and gambling with the industry’s future, or the work of a master dealmaker forcing others to come to the table? Perhaps a little of both?

Earlier this week, the U.S. ambassador to Germany told German car executives that President Donald Trump would suspend threats to impose tariffs on cars imported from the European Union if the European Union lifts duties on U.S. cars. But the wildest part of all of this is that both the automakers and the German government seem to be in support of it.

It will be a day or two too late by the time you read this, but: Happy Independence Day! It’s been a very long time since I felt compelled to cloak my appreciation of this country in the kind of irony frequently employed by my autojourno colleagues on Twitter and elsewhere, and I certainly won’t start now. The United States is far from perfect and I am afraid that some of the changes made here over the past fifty years have been profoundly negative in their effects, but it remains the proverbial city on the hill for many of the world’s citizens. As the song says, I’ve been around the world and I, I, I, I… haven’t seen any other place where middle-class families own property, start businesses, and create wealth like they do here.

While I certainly understand how many of my coastal friends and acquaintances no longer feel that the American Dream exists for them or for anyone else, I also feel compelled to note that we are doing just fine here in the Midwest. Where I live, four-year-old children play unsupervised outside and the police shake your hand in the street. Some time ago I accidentally left a $275,000 Ferrari out in front of my house overnight with the windows down, the keys on the center console, and my wallet next to them. Needless to say, nothing happened. I know that’s par for the course inside Mark Zuckerberg’s gates but my neighborhood consists mostly of stay-at-home moms and mid-five-figure household incomes. Come back to the real America, if you like, but leave your emotional support animals, your addiction to food-as-virtue, and your army of domestic staff behind you. Out here, people raise human children instead of “furbabies,” thoughtlessly consume GMO produce, and clean their own bathrooms. It’s considered character-building.

I know you won’t do it. Nobody is going to change sides. We are too deeply divided now into Blue And Red Tribes. We judge incoming information based on how well it conforms to our existing beliefs. Want an example? How about this: For over six decades, the automakers have been predicting that increased emissions, safety, and fuel-consumption standards would have a negative impact on the bottom line. The media alternately ignored and lampooned them for saying so. Now those same automakers say that Trump’s policies will have a similar impact and the media is treating it the way the Catholic Church once treated an ex cathedra pronouncement.

My response to that? It’s this…

Without a functional plan, each episode of the A-Team would have ended with four funerals. For Fiat Chrysler, however, the solution to its problem doesn’t involve welding armor plating to a series of scrapyard vehicles while the guy from Breakfast at Tiffany’s lays down covering fire with a Ruger Mini-14.

FCA’s main concern involves the current occupant of the White House, and what his proclamations could mean for the automaker’s bottom line. A 25-percent tariff on imported vehicles could erase nearly a billion dollars in profit each year.

Don’t worry — FCA’s working on a plan.

Automakers are not thrilled with the White House’s current interest in automotive tariffs. With factories scattered across the globe, no major manufacturer would go untouched by the proposed increases in import duties or the retaliatory tariffs foreign governments may issue in response.

There’s a lot to lose from a financial perspective. According to a recent analysis from Evercore ISI, Fiat Chrysler would take an annual hit of $866 million if the United States placed a 25-percent import tariff on cars. Considering that other automakers stand to lose at least that much, it’s unsurprising they’ve begun raising their corporate voices over the matter.

Granted, the FCA example is a worst-case scenario for that particular brand, but even a lesser tariff would see a profit loss of hundreds of millions. For an automaker like Mazda, the loss would be far worse.

Toyota’s not going silently into a potential future where tariffs are as prevalent as man buns and tattoos in a brewpub. In its submission to the U.S. Commerce Department, Toyota wants the government to know it’s a standout business, and that a tariff on imported automobiles and auto parts would backfire.

Even for vehicles built in the U.S., American buyers would face a steep price hike, Toyota claims. Care to fork over an additional $1,800 for a Kentucky-built Camry? Meanwhile, a Canadian supplier association representative warns of “carmageddon” if the tariffs come to pass.

Jeeps smallest U.S. offering stands to be hit hard by proposed import tariffs, according to calculations from an investment advisory firm, and the volume of vehicles Fiat Chrysler brings in from outside U.S. borders would see the automaker take it on the chin.

With the Trump administration mulling a range of tariffs, the firm tabulated just how much the import duties could cost FCA. If the tariffs come to pass, expect to see fewer Jeep Renegades on your local dealer lot.

Last week, we discussed how the motorcycle industry’s total failure to entice new riders for over a decade has come back to bite it in the ass. Two-wheeled ownership declined drastically in the United States after the Great Recession and never really bounced back. Blame a disinterested population of youngsters with less discretionary funds and few entry-level options to consider.

I speculated that automakers could be on a similar path, despite the passenger car segment being more of a necessity for average commuters and less apt to collapse outright. But that isn’t to presume they might not be subject to similar pitfalls, and we’ve a new one to consider. Harley-Davidson, which serves as the poster child for the motorcycle industry’s current crisis, recently announced it will end all U.S. production of motorcycles sold in Europe.

Those bikes will now be manufactured overseas. The company said in a regulatory filing with the U.S. Securities and Exchange Commission that retaliatory tariffs levied by the European Union on motorcycles exported from the U.S. jumped from 6 percent to 31 percent. Harley-Davidson’s already expensive products come at an additional premium in Europe, and the the company estimates the new fines will add another $2,200 per motorcycle, on average.

Just in time for the weekend, an escalation in the ongoing trade wars has seen the Trump administration announce a 25 percent tariff on $50 billion worth of goods imported from China. These tariffs include automobiles. For its part, China retaliated by applying a further 25 percent tariff on a similar amount of American goods, including automobiles.

The move comes less than a month after China announced a plan that would lower import duties and eventually allow foreign automakers to set up shop without a joint Chinese partner. Of course, that was then, and this is now.

While the Japanese government has walked on eggshells when discussing trade issues that are transforming the globe into an angry beehive, the nation’s automakers have been more forthright. However, they’re both getting increasingly vocal as the situation escalates.

As the United States and Japan head into trade discussions scheduled for July, it’s beginning to look like everyone will come out swinging — especially when it comes to the automotive industry. Last month, the White House launched a national security investigation into car and truck imports that could lead to new tariffs on some of Japan’s biggest U.S.-bound exports.

Japanese Finance Minister Taro Aso was uncharacteristically negative toward the current U.S. trade policy during a Group of Seven finance leaders’ gathering held last week. “It’s deeply deplorable,” Aso said. “Inward-looking policies involving one-sided, protectionist measures benefit no country.”

Governance is one hell of a slippery fish. While you want your elected officials to assist in helping the nation evolve with an ever-changing society, you don’t want a deluge of contradictory and ill-planned laws mucking things up. That’s why the best progress is carefully measured and negotiated. But something has to happen eventually or you begin wondering what we (and the various lobbies) are paying these dingbats the big bucks for.

For example, the North American Free Trade Agreement looks like it’s about to be abandoned until sometime after 2019. After negotiations missed numerous self-imposed deadlines, U.S. House Speaker Paul Ryan said Congress needed a notice of intent to sign by roughly May 17th if anything was to be finalized for 2018. That date came and went. Now, everyone appears to have thrown their hands up, with practically every country on the planet currently considering retaliatory tariffs against the United States.

As nations continue plotting how to best stab each other in the back in the wake the United States’ decision to impose steeper tariffs on aluminum and steel, manufacturers have to find a way to roll with the punches. Domestic BMW dealers have begun crapping their designer britches over fears that 3 Series models will suddenly host MSRPs in excess of $60,000 if the Trump administration follows through with a threat to impose high import duties on cars.

While we don’t know if the 25 percent import tariff on cars will come to pass, we do know the very real steel tariffs will shrink the profit margin of many vehicles. However, BMW is one of the first automakers we’ve heard discussing the purchase of more U.S. steel to mitigate costs.

There’s been quite a bit of the old “he said, she said” as the global trade war between developed nations coalesces. Germany has not covered U.S. President Donald Trump’s trade policy favorably, not that it has much reason to. His new tariffs on imported steel and aluminum has tested relationships with numerous countries and, while it isn’t the biggest exporter of metal to the United States, Germany has something to lose. Likewise, proposed duties on passenger vehicles have sincerely rubbed Deutschland the wrong way.

However, the issue was further complicated this week after a gossipy report surfaced claiming Trump told French President Emmanuel Macron in April that he would continue hampering the European auto manufacturers until there are no Mercedes-Benz vehicles driving in America.

There was a mighty blowback against the Trump administration’s suggestion to elevate tariffs to as much as 25 percent on all foreign-built passenger vehicles.

Already reeling from fresh import fees on aluminum and steel, Europe expressed its collective distaste on new taxes while Japan vowed to plead a strong case for itself. Meanwhile, prominent politicians and two of the largest automotive trade groups in the country came forward to condemn the plan, stating it was “confident that vehicle imports do not pose a national security risk” to the United States.

While the administration has already launched its investigation to determine whether vehicle and auto part importers threaten the industry’s health and ability to develop advanced technologies, the government noted that a second opinion wouldn’t hurt. Announced on Tuesday in the Federal Register, the the Commerce Department will allot two days in July for public comments on the matter.

President Trump announced a security investigation into auto imports last week, tasking Commerce Secretary Wilbur Ross with the job. His goal will be to determine what effects imported vehicles have on the national security of the United States under Section 232 of the Trade Expansion Act of 1962 — which sounds like a monumental and rather complex task.

Basically, Ross will examine whether or not the U.S. can get away with escalating automotive tariffs. That’s a touchy subject, considering how contentious global trade has become in recent months. Worse yet, the 80-year-old commerce secretary will have to continue promoting American businesses and industries outside its borders while deciding on an issue few trade partners will be happy with.

Automakers aren’t thrilled either. After Trump announced the investigation, the Association of Global Automakers and Alliance of Automobile Manufacturers both said they didn’t believe vehicle imports posed a national security risk. “To our knowledge, no one is asking for this protection. If these tariffs are imposed, consumers are going to take a big hit,” said John Bozella, President of Global Automakers, in a statement. “This course of action will undermine the health and competitiveness of the U.S. auto industry.”

President Donald Trump issued a tweet promising car manufacturers good tidings on Wednesday. “There will be big news coming soon for our great American Autoworkers,” he said. “After many decades of losing your jobs to other countries, you have waited long enough!”

Later that same day, the administration announced it had launched a national security investigation into car and truck imports under Section 232 of the Trade Expansion Act of 1962. The Commerce Department explained that the probe would investigate whether imported vehicles and parts threaten the domestic industry’s wellbeing, taking into account its ability to develop new technologies and the impact of tariffs.

“There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry,” Commerce Secretary Wilbur Ross said.