Trump tariffs pose challenge for Europe's carmakers

PARIS

U.S. tariffs on imported cars will create a major headache for European manufacturers such as Volvo, Volkswagen and Mercedes.

Donald Trump announced on Feb. 26 that European products would be subject to 25 percent customs duties "soon."

Half of the vehicles sold by European manufacturers in the United States are imported, according to Moody's, amounting to 785,000 cars worth $44 billion dollars in 2024.

If the tariffs take effect, the carmakers could absorb part of the cost in their margins or prices, Moody's said.

But another U.S. analyst said in early February that tariffs of 25 percent would wipe out any profits.

German car manufacturers would be particularly affected since they export most of their high-end models to the United States.

The announced 25-percent rate is a "provocation" and will make "products more expensive" for American customers, said the German Automobile Manufacturers' Federation (VDA).

Volkswagen makes all its Audi and Porsche models outside the United States. But Audi, which has a plant in Mexico, has long considered opening a factory in the United States.

BMW and Mercedes export sedans from Europe, but they also have U.S.-based factories where they make SUVs, Americans' favourite type of car, such as the BMW X5 and the Mercedes GLE.

They would escape customs duties for their sales in the United States, but exports of these SUVs to other countries would be hit if they decided to retaliate by increasing their tariff.

The additional customs duties could cost Mercedes "one point of margin" or around one billion euros, the group's financial director indicated on Feb. 20.

Chinese-Swedish maker Volvo makes nearly a fifth of its turnover in the United States, where it opened a factory in 2015.

"It's going to be turbulent, that's going to be part of the challenge for 2025," Volvo CEO Jim Rowan said at the start of February.

For its part, British brand Aston Martin said that it was relatively protected from customs duties, since it operates in the luxury segment where buyers are more willing to absorb the higher prices.

Stellantis is in a different situation. The result of the merger in 2021 of the Italian-American group Fiat-Chrysler and France's PSA, Stellantis mainly sells American models in the United States.

It only imports a few Fiat 500s, Maseratis or Alfa Romeos from Europe, and sends a few pickups in the opposite direction.

But the group would be more affected by the unravelling of the Canada-United States-Mexico free trade agreement (CUSMA), which would complicate the movement of its parts and vehicles between its factories in these three countries.