A Mercedes-Benz GLC F-Cell hybrid plug-in SUV automobile prototype. (Photographer: Krisztian Bocsi/Bloomberg)

BMW and Mercedes SUVs to Roam Free If U.S.-EU Tariffs Drop to 0%

(Bloomberg) -- There’s one big problem with the gambit the U.S. ambassador to Germany has floated as a way to resolve one of Donald Trump’s biggest trade bugaboos: Chevys and Fords aren’t going to flood Europe’s shores anytime soon, regardless of how low tariffs go.

The prospect of the U.S. and European Union pursuing a bilateral elimination of car tariffs sent German automaker shares soaring this week. It’s easy to see why when considering the sales ranks on both sides of the Atlantic: BMW AG and Daimler AG’s Mercedes-Benz models dominate among those vehicles that are shipped back and forth.

Five of the top six vehicles that’ll be shipped from U.S. auto plants and bought by buyers in EU countries this year will be German models, including South Carolina-built BMW X3 sport utility vehicles and Alabama-assembled Mercedes GLE SUVs, according to LMC Automotive.

BMW and Mercedes SUVs to Roam Free If U.S.-EU Tariffs Drop to 0%

American-made models from the Detroit Three -- General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV -- are expected to remain rare sights on European roads. The best-selling U.S.-assembled car this year by an American company will probably be Tesla Inc.’s Model S sedan, according to LMC’s projections.

Detroit’s Italian-American automaker Fiat Chrysler does lay claim to one of the top-selling imports to the U.S. from the EU: the Jeep Renegade SUV. But this list, too, is dominated by BMW, Daimler and Volkswagen AG. Nine of the 15 top-selling vehicles in the U.S. imported from the EU this year will roll off the companies’ German assembly lines, LMC predicts.

BMW and Mercedes SUVs to Roam Free If U.S.-EU Tariffs Drop to 0%

This may turn out to be a fly in the ointment for Trump, who last month threatened a 20 percent tariff on EU-imported autos. The U.S. charges tariffs of 2.5 percent on cars and 25 percent on pickups and delivery vans, while the EU’s levies are at 10 percent.

The U.S. president has said zero tariffs are indeed the end game he’s pursuing, although he’s described a big catch to that being a workable solution: companies are going to have to build more of their cars in America.

“What’s going to really happen is, there’s going to be no tax,” Trump told Fox News on Sunday. “You know why? They’re going to build their cars in America. They’re going to make them here.”

Investors who are optimistic that tariffs can be avoided “need to be very careful,” Max Warburton, an analyst at Sanford C. Bernstein, wrote in a note to clients on Friday. If they’re wrong and levies are implemented, they’ll hit European automakers’ earnings hard.

“It’s clear that the Germans will need to move to reorganize, disperse and localize production,” he said.

©2018 Bloomberg L.P.