Auto industry caught in the trade war crosshairs

The trade war comes along at a particularly bad time for BMW. The automaker recently authorized a $1 billion expansion for its plant in Spartanburg, South Carolina, its largest manufacturing complex in the world. The move was intended to create about 1,100 new jobs with the addition of the all-new X7 model, BMW’s largest and most expensive SUV yet.

“We’re proceeding full speed ahead,” said Oleg Satanovsky, a BMW spokesman, despite the automaker having previously warned that it might cut back on the project if a global trade war breaks out.

But Satanovsky was quick to add that “We will wait and see” what happens with the dispute in China, as that market was expected to be a critical one for the new X7 flagship, as well as the X5. Last year, Chinese motorists bought 52,407 X5s, making it the single most popular American-made vehicle sold in that country. The BMW X3 wasn’t far behind, with sales of 34,609.

BMW is caught in a tough spot as trade barriers rise, having no facility currently capable of taking on production of its X models in the short-term, but the spokesman suggested it is studying “a lot of options” it might have to take if the dispute stretches on. And the need to act could become even more dire if the Trump administration follows through with threats to impose new sanctions on European auto imports, a move that would all but certainly bring rapid retaliation.

Mercedes is the second-largest exporter of U.S.-made vehicles to China, the GLE generating 40,304 sales last year, while its GLS and R-Class models are in the top 10 list, as well.

For its part, the Stuttgart, Germany-based automaker is trying to keep a low profile as the trade war heats up. A spokesman for Mercedes’ parent Daimler told the Reuters news service that the company is “working with the relevant authorities to resolve the issue,” that has sidelined its GLE and GLS models at the Shanghai port, describing the issue as “entirely technical.”

The automakers “don’t want to get caught in the middle of a polarized situation,” said David Cole, the chairman-emeritus of the Center for Automotive Research, in Ann Arbor, Michigan. “They don’t want to be seen as being on one side or another.”

But there seems to be little they will be able to do to avoid getting caught up in the dispute, Cole and other observers said. And that could create an escalating series of challenges that only begin with higher sanctions. The issue facing Mercedes could be just the first step in delaying or outright blocking the shipment of American-made vehicles into China.

Meanwhile, analyst Phillippi worries that Chinese authorities could turn up the heat on U.S.-based manufacturers, General Motors, Ford, Fiat Chrysler and Tesla, in particular. “You could see a derailment of investment programs for expansion plans that have to be approved by the Chinese government,” he said.

GM is the second-largest automotive manufacturer in China, behind Volkswagen, and it is constantly upgrading and expanding its plants. Ford was a relative latecomer to the market and has been struggling to catch up. Its Chinese model line-up is out-of-date and it is getting ready to launch a new wave of products, including the Territory SUV revealed this week. Fiat Chrysler Automobiles was also a latecomer and needs to expand its relatively limited Chinese production base. And Tesla only last month confirmed plans to build its first assembly plant in Shanghai.

With relatively little effort, Chinese authorities could tie up all these programs, even cancel them outright, according to experts familiar with the way the country operates. Considering the vast size of the Chinese automotive market, such setbacks could prove disastrous.

But “both countries’ automotive industries could get hurt if the trade war escalates,” adds Phillippi.

The Chinese market imports relatively few foreign-made vehicles, the various trade barriers that have infuriated the Trump administration effectively limiting imports to specialty and high-end models. But China doesn’t export all that many vehicles, either. Until recently, Chinese plants struggled just to keep up with domestic demand. As the growth of the home market slows, however, that seems likely to change.

Source link

Share with your friends!

Products You May Like

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the latest Business news
straight to your inbox

Subscribe to our mailing list and get interesting stuff and updates to your email inbox.