Trump’s trade war to hit specific products of FCA

trump_marchionneFCA is one of the big automakers with the highest exposure to any trade change in USA. The company has a strong presence in its home market but not all of its success is due to the cars it produces locally. That is the main conclusion from the sales information by model through May 2018. Top executives have already said they are working on contingency plans in order to anticipate any tariff increase on imports that is likely to take place in the coming months.

TradeWar 1According to the data, half of FCA sales during the first five months of this year came from cars produced in USA. The result was 6 percentage points below the industry’s average, at 56% and behind its peers from Detroit, which would be better positioned in case of more tax on imports coming abroad. As President Trump and his trade advisers look to solve the $200 billion car trade deficit, the companies with the highest imports need to address this new threat to their profitability.

TradeWar 2The recent announcements indicate that the big changes would come from the cars coming from the European Union. The current conditions imposes a 2,5% tax on cars coming from the EU, but it could grow up to 20% in case the government concludes it is necessary to reduce the deficit. The immediate effect would be to have more expensive European-made cars in USA, and this would include cars from Alfa Romeo, Maserati, Fiat and even Jeep.

TradeWar 3Despite the threat, FCA doesn’t really sell a lot of EU-made cars in USA. Through May, they sold 57.300 units, up by 2,8% on the same period of 2017. It represented only 6% of its total sales in that country. All of these cars came directly from the Italian factories, as the American version of the Fiat 500 is produced in Mexico, the 500L comes from Serbia and the 124 Spider is produced in Japan. US consumers get the Italian-made version of the Jeep Renegade, which counted for 73% of total imports from the EU. The rest of products include the Alfa Romeo Giulia, Stelvio and 4C, Fiat 500X and all Maseratis.

TradeWar 4The big problem for FCA would come from eventual higher taxes from cars made in Mexico and Canada. As NAFTA negotiations seem to go nowhere, the cars produced in these countries could also face challenging times. FCA USA is in fact the automaker with the highest dependence on imports from NAFTA. While 21% of total car sales in USA came from Mexico and Canada, the percentage more than doubles to 43% in the case of FCA sales. That is a lot, especially when it is compared to the 12% at Ford. Unlike the European lineup, the cars coming from these countries are very important in terms of volume: Jeep Compass, Dodge Caravan, Chrysler Pacifica, Dodge Charger and Challenger, and Ram pickups.

TradeWar 5What to do? As the trade conditions are likely to change and get tougher in both sides of the Atlantic, FCA needs to resolve the localization issue as soon as possible. It means to relocate the production of the Jeep Renegade and decide whether producing it in the US or importing it from Brazil. It is not clear what the future of the Fiat 500X will be, as its sales performance is quite poor. An option could be to think of Serbia as the next production site for the new generation, as this country is not part of the European Union. In any case, Fiat could even be axed from the US lineup if higher taxes come into effect for Mexican or European made cars.

TradeWar 6That would be the easiest part. In contrast, the real challenge would be to find solutions to Alfa Romeo and Maserati, which are due to be the profit drivers of the group, but will be severely punished by more taxes. The good thing is that they play in a segment that is not strongly price-sensitive. However, volume in USA is a key factor for the success of any premium brand.

TradeWar 7Europe will respond with more taxes too. In this case only BMW and Daimler (and of course Tesla) would take the biggest hit. USA counted for only 1% of FCA registrations in Europe through May. Higher taxes on cars imported from USA would complicate things to small-volume cars like the Jeep Cherokee, Wrangler and even the Grand Cherokee. Trade wars are not good for the final consumer. Higher prices or more limited offer is the usual effect of more tariffs, and FCA needs to deal with this new scenario before it is too late.

Source: FGW database, Goodcarbadcar.net, Carsitaly.net, Bestsellingcarsblog.com, ANE, Automotive News

 

Advertisements

One response to “Trump’s trade war to hit specific products of FCA

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s