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Can U.S. Automakers Survive the Bumpy Tariff Ride?
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Bayerische Motoren Werke Aktiengesellschaft (BAMXF - Free Report) , the maker of BMW, will be hiking prices of two of its U.S.-made SUVs in China to cope with the additional cost of tariffs. Automakers have started feeling the heat of the trade war, with China imposing 40% tariffs on cars imported from the United States.
Given this scenario, automakers are now being compelled to either hike the price of their vehicles or absorb additional costs, thus decreasing their profits. The only bright sign amid this is Trump’s announcement last week that the United States and the EU will collaborate and work out a solution to avoid a potential trade war.
BMW Follows Tesla, Hikes Car Price in China
BMW has hiked the price of two of its U.S.-made SUVs — X5 and X6 — by 4% to 7%. Earlier this month, China imposed 40% tariffs on U.S.-made cars. Given the rate of increase in price, it suggests that the rest of the cost will be absorbed by the company, which undoubtedly will result in lower profits.
BMW’s decision follows Tesla, Inc.’s (TSLA - Free Report) move to hike prices of its Model X and S cars in China by 20% each. Reportedly, German carmaker Daimler AG , the manufacturer of Mercedes Benz, too moderately hiked the price of its U.S-made SUV, GLE, in mid July.
Earlier this year, China had cut tariffs on all imported cars but slapped an additional 25% tariff on U.S.-made cars in retaliation to President Donald Trump’s decision to impose tariffs on Chinese imports. Given this scenario, automakers with production units in the United States now have to either hike the prices of their vehicles in China or digest higher cost.
Domestic Carmakers Suffer
Last week, Ford Motor Company (F - Free Report) reported lower-than-expected earnings. Consequently, the company also cut its guidance, joining the likes of General Motors Company (GM - Free Report) and Fiat Chrysler Automobiles N.V. .
General Motors has also said that raw material costs could be a $1 billion headwind to the company, while Fiat said that China tariffs are taking a toll on its sales. Moreover, Ford had earlier said that it won’t raise prices of its vehicles in China, which could further hurt its revenues.
Tariffs to Further Affect Domestic Automakers
Trump’s idea of imposing tariffs was in a move to save the domestic auto industry. However, so far the industry hasn’t gained much. In fact, a number of automakers are also considering shifting production out of the United States, which could mean further loss in jobs.
Harley-Davidson, Inc. (HOG - Free Report) last month said that it will move part of its production out of the United States to avoid EU tariffs. General Motors too will be making its new Chevrolet Blazer at its Mexico plant.
A study by a U.S. auto dealer group reveals that tariffs on cars could cut U.S. auto sales by 2 million vehicles annually and cost more than 117,000 in auto dealer job cuts. Jennifer Kelly, research director of United Auto Workers union, recently said that U.S. auto production has declined to 11.2 million vehicles in 2017 from 12.8 million in 2000, with jobs shrinking by 400,000 over that period, as many automakers shifted production to Mexico or other low-wage countries.
Summing Up
Automakers have already started feeling the heat of tariffs. Although Trump last week said that the United States and EU will work together to avoid a potential trade war, it is yet to be seen if automakers will be able to survive the tariff burden that has not only resulted in higher raw material cost but also in higher cost of exporting cars to China.
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 U.S. Automakers Survive the Bumpy Tariff Ride?
Bayerische Motoren Werke Aktiengesellschaft (BAMXF - Free Report) , the maker of BMW, will be hiking prices of two of its U.S.-made SUVs in China to cope with the additional cost of tariffs. Automakers have started feeling the heat of the trade war, with China imposing 40% tariffs on cars imported from the United States.
Given this scenario, automakers are now being compelled to either hike the price of their vehicles or absorb additional costs, thus decreasing their profits. The only bright sign amid this is Trump’s announcement last week that the United States and the EU will collaborate and work out a solution to avoid a potential trade war.
BMW Follows Tesla, Hikes Car Price in China
BMW has hiked the price of two of its U.S.-made SUVs — X5 and X6 — by 4% to 7%. Earlier this month, China imposed 40% tariffs on U.S.-made cars. Given the rate of increase in price, it suggests that the rest of the cost will be absorbed by the company, which undoubtedly will result in lower profits.
BMW’s decision follows Tesla, Inc.’s (TSLA - Free Report) move to hike prices of its Model X and S cars in China by 20% each. Reportedly, German carmaker Daimler AG , the manufacturer of Mercedes Benz, too moderately hiked the price of its U.S-made SUV, GLE, in mid July.
Earlier this year, China had cut tariffs on all imported cars but slapped an additional 25% tariff on U.S.-made cars in retaliation to President Donald Trump’s decision to impose tariffs on Chinese imports. Given this scenario, automakers with production units in the United States now have to either hike the prices of their vehicles in China or digest higher cost.
Domestic Carmakers Suffer
Last week, Ford Motor Company (F - Free Report) reported lower-than-expected earnings. Consequently, the company also cut its guidance, joining the likes of General Motors Company (GM - Free Report) and Fiat Chrysler Automobiles N.V. .
The three major U.S. automakers have all stated that rising costs of steel and aluminum have compelled them to lower their guidance. General Motors has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
General Motors has also said that raw material costs could be a $1 billion headwind to the company, while Fiat said that China tariffs are taking a toll on its sales. Moreover, Ford had earlier said that it won’t raise prices of its vehicles in China, which could further hurt its revenues.
Tariffs to Further Affect Domestic Automakers
Trump’s idea of imposing tariffs was in a move to save the domestic auto industry. However, so far the industry hasn’t gained much. In fact, a number of automakers are also considering shifting production out of the United States, which could mean further loss in jobs.
Harley-Davidson, Inc. (HOG - Free Report) last month said that it will move part of its production out of the United States to avoid EU tariffs. General Motors too will be making its new Chevrolet Blazer at its Mexico plant.
A study by a U.S. auto dealer group reveals that tariffs on cars could cut U.S. auto sales by 2 million vehicles annually and cost more than 117,000 in auto dealer job cuts. Jennifer Kelly, research director of United Auto Workers union, recently said that U.S. auto production has declined to 11.2 million vehicles in 2017 from 12.8 million in 2000, with jobs shrinking by 400,000 over that period, as many automakers shifted production to Mexico or other low-wage countries.
Summing Up
Automakers have already started feeling the heat of tariffs. Although Trump last week said that the United States and EU will work together to avoid a potential trade war, it is yet to be seen if automakers will be able to survive the tariff burden that has not only resulted in higher raw material cost but also in higher cost of exporting cars to China.
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 >>