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Can Automakers Drive Safe on China's Bumpy Tariff Road?
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On Aug 8, China retaliated with 25% tariffs on $16 billion worth of U.S. goods that include cars and motorcycles. Automakers are already feeling the heat of tariffs and the recent announcement is only going to make things difficult. Also, China’s automobile sales declined 4% in July, with U.S. carmakers losing considerable market share.
Trade war fears have started taking its toll on automakers. The rising price of imported steel and aluminum is already affecting the auto industry, which has forced a number of automakers to raise prices of certain models in China, while others are being compelled to absorb the increased costs.
China Retaliates, Automakers Feel the Heat
Last week, China retaliated with 25% tariffs on $16 billion worth of U.S. goods that include large passenger cars and motorcycles. Understandably, this will escalate the cost of U.S.-made cars in China. U.S. carmakers are already bearing the brunt of additional tariffs that have pushed up the cost of imported steel and aluminum, resulting in higher car costs.
This has forced a number of automakers to raise prices of certain models. Tesla, Inc. (TSLA - Free Report) has already hiked the price of its Model X and S cars in China by 20% each. Bayerische Motoren Werke Aktiengesellschaft (BAMXF - Free Report) ) and Daimler AG , which make cars in the United States and sell in China, too have hinted at raising prices. Tesla carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
On the other hand, Harley-Davidson, Inc. (HOG - Free Report) last month said that it will move part of its production out of the United States to avoid European Union tariffs. General Motors Company (GM - Free Report) too has said that it will be making its new Chevrolet Blazer at its Mexico plant to avoid tariffs.
China Auto Sales Fall in July
Meanwhile, automobile sales in China dropped 4% in July from the year-ago quarter to 1.89 million vehicles, as U.S. automakers continue to lose market share. China’s auto market had started rebounding after a slump in February. July’s sharp sales decline follows two consecutive months of growth. Auto sales jumped 9.6% and 4.8% in May and June, respectively.
The United States exported around 276,000 vehicles to China in 2017. Understandably, higher tariffs could lower this figure considerably this year. July’s decline hints at tariffs finally impacting auto sales. Moreover, on Aug 10, Ford Motor Company (F - Free Report) reported that its China sales fell 32% in July from a year earlier. Ford is the third largest U.S.-made car exporter to China, while BMW and Mercedes hold the number one and two spot, respectively.
Impact Not Limited to Prices
It’s not only the price that is likely to get affected by increasing trade disputes. A number of U.S. automakers have been expanding their operations in China in order to capture the world’s fastest-growing car market.
General Motors is presently the second-largest automobile manufacturer in China and has been constantly investing and expanding its plants in China. Fiat Chrysler Automobiles N.V. and Ford too are trying to fast catch up by expanding in China. Also, Tesla in July said that it plans to open its first production unit in Shanghai. However, with trade disputes escalating, such plans may face a roadblock if China decides to delay or cancel these programs.
Moreover, a study by a U.S. auto dealer group reveals that tariffs on cars could cut domestic auto sales by 2 million vehicles annually and cost more than 117,000 in auto dealer job cuts, which is 10% of the workforce. The group also said that 25% tariffs would raise the price of U.S. vehicles by $83 billion annually. Understandably, tariffs will not only raise the price of cars but also lead to huge job losses that will deal a severe blow to the U.S. economy.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Image: Bigstock
Can Automakers Drive Safe on China's Bumpy Tariff Road?
On Aug 8, China retaliated with 25% tariffs on $16 billion worth of U.S. goods that include cars and motorcycles. Automakers are already feeling the heat of tariffs and the recent announcement is only going to make things difficult. Also, China’s automobile sales declined 4% in July, with U.S. carmakers losing considerable market share.
Trade war fears have started taking its toll on automakers. The rising price of imported steel and aluminum is already affecting the auto industry, which has forced a number of automakers to raise prices of certain models in China, while others are being compelled to absorb the increased costs.
China Retaliates, Automakers Feel the Heat
Last week, China retaliated with 25% tariffs on $16 billion worth of U.S. goods that include large passenger cars and motorcycles. Understandably, this will escalate the cost of U.S.-made cars in China. U.S. carmakers are already bearing the brunt of additional tariffs that have pushed up the cost of imported steel and aluminum, resulting in higher car costs.
This has forced a number of automakers to raise prices of certain models. Tesla, Inc. (TSLA - Free Report) has already hiked the price of its Model X and S cars in China by 20% each. Bayerische Motoren Werke Aktiengesellschaft (BAMXF - Free Report) ) and Daimler AG , which make cars in the United States and sell in China, too have hinted at raising prices. Tesla carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
On the other hand, Harley-Davidson, Inc. (HOG - Free Report) last month said that it will move part of its production out of the United States to avoid European Union tariffs. General Motors Company (GM - Free Report) too has said that it will be making its new Chevrolet Blazer at its Mexico plant to avoid tariffs.
China Auto Sales Fall in July
Meanwhile, automobile sales in China dropped 4% in July from the year-ago quarter to 1.89 million vehicles, as U.S. automakers continue to lose market share. China’s auto market had started rebounding after a slump in February. July’s sharp sales decline follows two consecutive months of growth. Auto sales jumped 9.6% and 4.8% in May and June, respectively.
The United States exported around 276,000 vehicles to China in 2017. Understandably, higher tariffs could lower this figure considerably this year. July’s decline hints at tariffs finally impacting auto sales. Moreover, on Aug 10, Ford Motor Company (F - Free Report) reported that its China sales fell 32% in July from a year earlier. Ford is the third largest U.S.-made car exporter to China, while BMW and Mercedes hold the number one and two spot, respectively.
Impact Not Limited to Prices
It’s not only the price that is likely to get affected by increasing trade disputes. A number of U.S. automakers have been expanding their operations in China in order to capture the world’s fastest-growing car market.
General Motors is presently the second-largest automobile manufacturer in China and has been constantly investing and expanding its plants in China. Fiat Chrysler Automobiles N.V. and Ford too are trying to fast catch up by expanding in China. Also, Tesla in July said that it plans to open its first production unit in Shanghai. However, with trade disputes escalating, such plans may face a roadblock if China decides to delay or cancel these programs.
Moreover, a study by a U.S. auto dealer group reveals that tariffs on cars could cut domestic auto sales by 2 million vehicles annually and cost more than 117,000 in auto dealer job cuts, which is 10% of the workforce. The group also said that 25% tariffs would raise the price of U.S. vehicles by $83 billion annually. Understandably, tariffs will not only raise the price of cars but also lead to huge job losses that will deal a severe blow to the U.S. economy.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
Click for details >>