American automakers prepare for China tariff

China Daily, December 19, 2011

New taxes on US cars may not make big dent, analysts say
NEW YORK - While American politicians have lashed out against China's new two-year tariff on imported cars from the United States, business analysts don't expect them to have that much of an effect on the industry.
China's Commerce Ministry said on Wednesday duties between 2-21.5 percent would be imposed starting on Thursday on large cars and SUVs with 2.5-liter engines and above.
Chinese authorities, citing that US imports were "damaging the local car industry", listed the following companies required to pay the tariff: General Motors Co, Chrysler Group Ltd, Mercedes-Benz US International Inc, BMW's factory in Spartberanburg, South Carolina, and Honda of America Manufacturing Co.
The ministry noted that GM and Chrysler were bailed out by the US government in 2009 and the others have received local government tax credits and other subsidies to support production in the US.
Growth of car sales in the world's largest automobile market has hit a 13-year low, hurting Chinese producers more than foreign automakers.
For some analysts, this appears to be a "retaliatory measure" by China in response to the World Trade Organization rejecting its appeal of a ruling in favor of US duties on imported Chinese tires.
This action, which "reflects the rising tensions between China and the US on trade matters", will have only a small impact on the industry, said Bill Russo, founder and president of Synergistics Ltd, an international advisory firm.
"The impact on GM is very limited. GM imports less than one-half of 1 percent of its Chinese volume, and the imported vehicles in GM's lineup, such as the Cadillac SRX and Buick Enclave, are sold to customers who are less sensitive to prices," Russo said.
JP Morgan analyst Himanshu Patel agrees that China's tariff - 8.9 percent anti-dumping duty and 12.9 percent anti-subsidy duty - won't hurt GM's profits in China much.
Patel, in a research report to address China's import tariffs, cited that GM sold fewer than 32,000 imported vehicles in China, compared to its total of 2.4 million car sales in China.
Ford imports just one model to China and is not likely to be affected. Chrysler, on the other hand, is completely reliant on imports.
"The tariff impacts Chrysler significantly since they import about 24,000 vehicles, and have no local partnerships after the separation from Daimler. This action will have a significant impact on pricing for models like the Wrangler and Grand Cherokee," Russo said.
Chrysler plans to localize production through its majority shareholder Fiat SpA's partnership with Guangzhou Automobile Group, according to Russo.
To account for the new tariff, carmakers will either pass on the higher price tag to consumers or absorb the added cost, which will impact their profit, said Russo. But in the long term, they need to "shift to a localized business model to mitigate such trade risks" he said.
Patel projects China's tariff will motivate GM to produce cars in China. Klaus-Peter Martin, GM spokesman, told Bloomberg in an interview that the company's goal is to build where it sells.
German carmaker BMW leads the pack in "material exposure" to the tariff, with about 25,000 vehicles imported from the US, Itay Michaeli, a New York-based analyst for Citigroup Inc, wrote in a note to clients.
Washington-based US-China Business Council (USCBC), said in a statement that motor vehicles affected by the tariff represents about 3 percent of all American exports to China.
In 2010, the US exported about $3.5 billion worth of motor vehicles to China and this amount is projected to increase to almost $4.5 billion this year.
"The ability for American companies to export and sell cars to China is important," USCBC President John Frisbie said in a statement.

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