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Headwind For The European Automotive Sector

22 June 2018 by lberuti

Until very recently, many thought that trade war issues would fade away. But over the last few days, the first measures and countermeasures effectively kicked in, and some could prove extremely disruptive to car-makers for their production set-up and for their profit margins. BMW and Mercedes have both made the US their global SUV manufacturing hub, and they will be among the main casualties of the tariffs imposed by China on American exports. So much so that it prompted DAIGR’s ( Daimler AG ) warning this week that its 2018 profit will drop because of fewer Mercedes-Benz SUV exports from its Alabama factory. It was one of the first big industrial businesses in Europe to cite and quantify the most recent escalation in trade rhetoric as a headwind in its trading update. If President Trump goes ahead with the 20% tariff he threatened to impose on all European car imports this afternoon, the recent underperformance of Autos’ risk premia in Europe could have more legs.