U.S President-elect Donald Trump has warned German car companies that he would impose a border tax of 35 percent on vehicles imported to the U.S. market, which led the automakers’ shares fall. Trump has criticized German carmakers such as BMW, Daimler, and Volkswagen for failing to produce cars on U.S. soil.
Trump is taking such harsh steps to revive U.S. industrial jobs. Moreover, he has also warned that Japan’s Toyota could be subject to a “big border tax” if the company builds its Corolla cars for the U.S. market at a planned factory in Mexico.
All the three German carmakers Volkswagen, BMW and Daimler have invested heavily in Mexico, despite manufacturing in the United States. BMW as per the plan is investing around $1 billion in a new plant in Mexico which would go into production in 2019 and create at least 1,500 jobs. Daimler has plans to begin assembling of Mercedes-Benz vehicles in 2018 from a $1 billion facility shared with Renault-Nissan in Aguascalientes in Mexico. Volkswagen is investing another $900 million in its U.S. plant in Chattanooga, Tennessee.
As per Germany’s VDA automotive industry association, the German carmakers have quadrupled light vehicle production in the United States over the past seven years to 850,000 units, which is more than half of which are exported from there. Additionally, German carmakers employ about 33,000 workers in the United States and German automotive suppliers about 77,000 more.
On the other hand, looks like General Motors Company (NYSE: GM) is taking proactive decisions. They announced a $1 billion investment in US plants over several years, which will create or keep 1,000 jobs. This is planned for months and the investment is part of the normal process of equipping factories to build new models. This could also be an announcement in response to Trump. Other rivals, Ford Motor Co. and Fiat Chrysler Automobiles NV have also planned their investments. The carmakers are ready to cooperate with the incoming administration as they prepare to ask for favors including weaker fuel economy rules and lower corporate taxes. Meanwhile, General Motors has a small-car production in Mexico and intends to maintain it.
General Motors has a budget of about $9 billion a year toward the capital expenditures, including for new models and factory upgrades. General Motors had announced at least $2.9 billion in U.S. investments for future production of engines and vehicles in 2016. General Motors stock delivered 17.2% returns to shareholders in just last three months (As of January 16th, 2017; Source: Google finance).