Carmakers See $18 Billion Wiped Out by Trump’s Mexico Threat
Ma Jie and Maiko Takahashi
Bloomberg•May 31, 2019
finance.yahoo.com
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Carmakers See $18 Billion Wiped Out by Trump’s Mexico Threat
(Bloomberg) -- The automotive industry is bearing the brunt of trade-war crossfire again as U.S. President Donald Trump threatens to slap tariffs of as much as 25% on goods from Mexico, a key production hub for carmakers from Mazda Motor Corp. to General Motors Co.
Mexico is the largest source of U.S. vehicle and auto-parts imports, meaning tariffs would increase costs for virtually every major manufacturer. In late night tweets Thursday, Trump warned tariffs would start at 5% on June 10 and increase to 25% on Oct. 1 unless Mexico stops immigrants from entering the U.S. illegally.
A dozen of the world’s largest automakers -- including Ford Motor Co., Toyota Motor Corp. and Volkswagen AG -- lost about $18 billion in market value by the start of regular U.S. trading Friday. The Bloomberg World Auto Manufacturers Index slumped as much as 2.2% to the lowest intraday since July 2016.
“Tariffs will mean higher price tags on cars for sales in U.S. and that will hit sales,” said Seiichi Miura, an analyst at Mitsubishi UFJ Morgan Stanley. “While the impact will differ for each carmaker, all of them have moved into Mexico.”
GM, Ford and Fiat Chrysler Automobiles NV shares all plunged at least 4% in New York trading. Critical models imported from Mexico include GM’s Chevrolet Silverado and GMC Sierra and Fiat Chrysler’s Ram full-size pickups, the industry’s most profitable vehicles; Toyota’s Tacoma mid-size trucks; and sedans including Nissan Motor Co.’s Versa and Sentra, Volkswagen’s Jetta and the Mazda3.
A 25% tariff would be worth $86.6 billion annually, which “could cripple the industry and cause major uncertainty,” Emmanuel Rosner, an auto analyst for Deutsche Bank, wrote in a report Friday.
Japan’s Toyota and South Korea’s Kia Motors Corp. declined more than their respective benchmark indexes. Shares of Mazda, which is particularly reliant on Mexico, fell to the lowest since 2013. Toyota, Honda, Mazda and Nissan lost about 1 trillion yen ($9.2 billion) in combined market capitalization Friday.
In Germany, Volkswagen, Mercedes-Benz maker Daimler AG and BMW AG together lost about 5.29 billion euros ($5.9 billion) in value. Daimler manufactures heavy trucks, buses and parts in the country. BMW is slated to open a plant in San Luis Potosi next week that will make 3-Series sedans for the U.S. market starting later this year.
Canada’s Magna International Inc., which has 32 facilities and more than 29,000 employees in Mexico, slumped as much as 5.8% in Toronto. Sweden’s Dometic Group AB, which manufactures climate-control systems for trucks and recreational vehicles, fell as much as 6.5%. The company said in April it planned to build a second plant in Mexico, moving additional capacity there from China. Autoliv Inc., which has more than 14,000 employees in Mexico making steering wheels, seat belts and airbags, dropped as much as 6.9%.
The latest tariff threat highlights how automakers and their closely intertwined supply chains are among the biggest losers of escalating trade tensions. Given the scale and global nature of auto manufacturing today, the industry has often been in the middle of the crosshairs of Trump, who’s gone as far to say that imported cars represent a threat to U.S. national security.
Export Base
Mazda’s Mexico factory last year made 183,266 cars. The company imports all vehicles it sells in the U.S., mostly from Japan and Mexico. It’s now building a multibillion-dollar facility in Huntsville, Alabama, with Toyota.
Nissan has three plants in the country with a combined capacity of 850,000 vehicles annually. By comparison, Honda’s is 263,000, while Toyota’s is 200,000 units.
The tariffs would also impact South Korean automakers that make cars in Mexico. Kia exports about 80% to 90% of the 300,000 vehicles it makes a year at its Mexico plant to the U.S., according to SK Securities Co. analyst Kwon Soon-woo. Kia representatives couldn’t immediately comment.
Earlier in May, Trump concurred with the conclusions of his Commerce Department, which investigated imports of vehicles and auto parts and found they harm national security by having led to a declining market share for “American-owned” carmakers since the 1980s. That prompted Toyota to issue an unusually strong-worded statement denouncing the administration’s policies.
Simmering Concerns
Well before that, however, Mazda and Toyota had expressed concern over the looming threat of tariffs. They were among the dozens of carmakers and parts suppliers that filed comments to the Commerce Department in an effort to push against potential tariffs almost a year ago.
Japan’s government has been on a charm offensive, seeking to forestall any retaliatory action against Japanese manufacturers and exporters. Prime Minister Shinzo Abe hosted Trump in Japan last weekend as the first foreign head of state to meet new Emperor Naruhito. The four-day itinerary included a state dinner, golf, a Sumo wrestling match, a visit to warships and trade discussions.
“This news is further oil on the trade war fire and starts a new front with others (Japan) now thinking they could be next,” said Olivier d’Assier, APAC Head of Applied Research at Axioma. “The odds that Trump will target Japan next have clearly risen in their mind after today’s news.”
--With assistance from Toshiro Hasegawa, Annie Lee, Teo Chian Wei, Sohee Kim, Oliver Sachgau, Niclas Rolander, Keith Naughton, Jacqueline Thorpe and Kristine Owram.
To contact the reporters on this story: Ma Jie in Tokyo at jma124@bloomberg.net;Maiko Takahashi in Tokyo at mtakahashi61@bloomberg.net
To contact the editors responsible for this story: Craig Trudell at ctrudell1@bloomberg.net, ;Young-Sam Cho at ycho2@bloomberg.net, Cécile Daurat
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