BMW MINI vehicles are displayed for sale at a car dealership in Louisville, Kentucky, U.S.(Photographer: Luke Sharrett/Bloomberg)

BMW and Audi Dealers Bracing For ‘Scary,’ ‘Tragic’ Trump Tariffs

(Bloomberg) -- Ask auto dealers what they make of Donald Trump threatening to tax imports of European models, and they’ll tell you buyers of those cars might as well throw the money saved on their tax bills out the driver-side window.

“It’ll have one of the most negative effects on his presidency and anything good he’s done,” Marc Cohen, the vice president of Priority 1 Automotive Group, said after the president tweeted a threat that sank shares of carmakers including Volkswagen AG and Daimler AG.

Trump’s rhetoric against cars made in Germany, Japan and Mexico was common on the campaign trail and continued early on in his presidency. But there was little follow-through for America’s auto dealers to worry about -- until lately. With the administration now investigating whether auto imports pose a national security threat and vowing to slap levies on China-built Buicks and other models within weeks, salesmen in showrooms across the country are sitting up in their chairs.

“It’s definitely got legs under it now, and it’ll be tragic,” said Cohen, who sells BMW, Porsche and Audi vehicles in Baltimore.

The cost of the tariffs will have to be passed along to consumers, which will hurt sales, said Frank Ursomarso, a BMW, Jaguar and Volvo dealer in Delaware, who described Trump’s tweet as “scary.”

“It’s a simple rule of economics -- the higher the price, the lower the volume,” said Ursomarso, chairman of Union Park Automotive Group, which also includes General Motors Co.’s Buick and GMC brands. “If you raise the cost of the car to me, then you’re aggravating an already seriously difficult profit situation. I don’t think dealers can absorb much more.”

The U.S. imported about 1.16 million vehicles from EU countries last year, according to Commerce Department data. BMW AG and Mercedes-Benz maker Daimler produce hundreds of thousands of sport utility vehicles in the U.S. South, so the more common models arriving on American shores are sedans such as BMW’s 3 Series and 5 Series, and the Mercedes E-Class.

Read more: Trump’s threat adds to strains on global auto trade

“I have a BMW 750 here, and I’ve got about $111,000 in that car,” Ursomarso said, referring to the money dealers pay manufacturers for their inventory. “If you put a 20 percent tariff on $111,000, you’re not going to sell as many.”

The Detroit Three also have a handful of models that would be at risk, including Fiat Chrysler Automobiles NV’s Jeep Renegade and GM’s Buick Cascada convertible.

Trump’s tariff rhetoric risks hurting consumer confidence and undermining a U.S. auto market that’s expected to shrink for a second straight year, after record sales in 2016, said Cody Lusk, president of the American International Automobile Dealers Association.

“You’re already going to see prices going up incrementally as a result of the steel and aluminum tariffs in the auto sector,” said Lusk, whose group represents dealers selling foreign-brand cars in the U.S. “All of that combined with increasing interest rates is a recipe for disaster.”

©2018 Bloomberg L.P.

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