German carmakers hit by report Trump threatens to drive them off U.S. streets

[May 31, 2018]  By Madeline Chambers and Edward Taylor

BERLIN/FRANKFURT (Reuters) - A report that U.S. President Donald Trump has threatened to pursue German carmakers until there are no Mercedes-Benz rolling down New York's Fifth Avenue dented shares in the luxury car manufacturers on Thursday.

An excerpt from German magazine Wirtschaftswoche's article, which cited several unnamed European and U.S. diplomats but did not include any direct quotes, could not be independently verified, while a United States Embassy spokesman in Berlin referred questions to Washington.

The news and current affairs magazine said Trump had told French President Emmanuel Macron in April that he aimed to push German carmakers out of the United States altogether. Macron's administration in Paris declined to comment on the report.

The Trump administration last week opened a trade investigation into vehicle imports, which could result in a 25 percent tariff on cars on the same "national security" grounds Washington used to impose metals duties in March.

This could destroy exports by German carmakers, which control 90 percent of the U.S. premium market and are the biggest European Union exporters of cars to the United States.

BMW owns Rolls-Royce, while Daimler has Mercedes-Benz and Volkswagen <VOWG_p.DE> controls Bentley, Bugatti, Porsche and Audi.

Daimler, BMW and Audi declined comment. Porsche was not immediately available for comment.

BMW shares were trading 0.5 percent lower at 0939 GMT, while Daimler and VW's shares were down 1 percent and 1.6 percent respectively, underperforming Germany's blue-chip DAX.

Trump has railed against German carmakers before and in early 2017, in an interview with German newspaper Bild, had said he would impose 35 percent tariffs on imported cars.

At the time, the president called Germany a great car producer but said that the business relationship with the United States was an unfair one-way street.

Germany's auto industry association VDA says its members exported 657,000 vehicles to North America last year, with total exports of vehicle components, cars, engines, as well as second-hand vehicles totaling 31.2 billion euros in 2016.

Imports from the United States to Germany amounted to 7.4 billion euros, meaning a trade deficit of 23.8 billion euros the VDA's latest available figures show.

However, German brands also have huge factories in the United States, where they built 804,000 cars last year, VDA said, providing jobs for U.S. workers.

A Mercedes Benz AMG C 63 Sedan is displayed at the New York Auto Show in the Manhattan borough of New York City, New York, U.S., March 28, 2018. REUTERS/Brendan McDermid/File Photo

NATIONAL SECURITY

Berlin has reacted angrily to the U.S. vehicle imports investigation, but the head of Germany's BDI industry association Dieter Kempf on Thursday called for prudence in the growing trade tensions between the EU and the United States.

If the EU imposes countermeasures, it must expect Trump to come up with further measures, he told Deutschlandfunk radio.

EU passenger car imports from the United States were worth 6.2 billion euros ($7.3 billion) last year, while the bloc's U.S. exports topped 37 billion euros, according to Brussels-based industry association ACEA.

The threats made to the car sector are part of a bigger trade dispute with the United States.

Trump is expected to decide on Thursday whether to end an EU exemption from tariffs on U.S. imports of steel and aluminum, a move Germany has warned could lead to a trade war.

But late on Wednesday, talks to avoid a transatlantic trade war showed no sign of a breakthrough.

German Finance Minister Olaf Scholz told Reuters there were no signs of a de-escalation and that the EU response to any tariffs must be "clear and strong and smart".

Trump's auto tariff is a test of Franco-German solidarity since French carmakers have hardly any U.S. sales, while German carmakers generate up to 30 percent of global sales there.

A 25 percent tariff would destroy the business case for German carmakers to export to the United States, and mean a 4.5 billion euro hit for Germany's premium manufacturers, analysts at Evercore ISI said in a note last week.

Audi and Porsche are seen to be particularly vulnerable because they do not have U.S. factories, while Mercedes-Benz and BMW have large established plants which could more easily allow them to expand local production capacity if imports were curtailed.

(Additional reporting by Jean-Baptiste Vey in Paris and Michael Nienaber in Berlin; Reporting by Madeline Chambers; Writing by Edward Taylor; editing by John Stonestreet and Alexander Smith)

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