As Washington mulls a tax on imports, an auto industry study suggests the policy would deliver the sharpest blow to Tata Motors Ltd.'s Jaguar Land Rover while giving a leg up to Tesla Inc. and Ford Motor Co.
In what it calls a "thought exercise," industry researcher Baum & Associates LLC estimates that most automakers would need to raise vehicle prices by thousands of dollars -- more than $17,000 per vehicle in Jaguar Land Rover's case -- to recoup higher costs incurred under the House Republican-proposed border-adjusted tax. Ford would need to consider the smallest price increase among major automakers -- about $282 per vehicle -- followed by General Motors Co. at $995, according to the report.
The estimates aim to show the relative impact of the tax plan on each automaker, according to Alan Baum, the founder of West Bloomfield, Mich.-based Baum & Associates. Carmakers are unlikely to raise prices by more than a few thousand dollars per car and would also likely have to foot some of the higher tax burden.
"The plan results in a net cost for automakers," Baum said by phone. "Each company will then make its own decisions on pricing in order to best compete and maximize its profits."
Volvo and Volkswagen vehicle prices would have to rise by about $7,600 and $6,800 on average, according to estimates by Baum & Associates, which advises suppliers. President Donald Trump is said to be warming to the border-adjusted tax after initially viewing it as too complicated.
The proposal to begin levying companies' imports and domestic sales and make exports tax-exempt would overhaul the U.S. tax code. General Electric Co. and Boeing Co. are among U.S. manufacturers getting behind the idea, while Toyota Motor Corp. and Wal-Mart Stores Inc. are among the corporate giants warning it will result in costlier products ranging from food and clothing to gasoline and auto parts.
The Baum & Associates report accounts for imports of both finished vehicles and parts for domestic cars that are made overseas. The one automaker that may be able to keep prices steady would be Model S sedan maker Tesla.
The proposed border tax may induce automakers to increase U.S. parts procurement and production from existing vehicle assembly plants, according to the report. Overseas automakers including Fuji Heavy Industries Ltd.'s Subaru, Mitsubishi Motors Corp., Mazda Motor Corp., Hyundai Motor Co. and Kia Motors Corp. may also consider expanding existing U.S. operations or building new capacity.
If auto sales slow, the tax would create an incentive for automakers to keep U.S. plants running at the expense of those in Canada and Mexico. That could encourage Fiat Chrysler Automobiles NV to accelerate the conversion of its factory in Sterling Heights, Mich., to build light-duty pickups there instead of Mexico, and to add medium- and heavy-duty truck output at the plant, said Dan Luria, an economist at the Michigan Manufacturing Technology Center in Ann Arbor and the lead author of the Baum & Associates report.
Nissan Motor Co. might export more from Mexico to Latin American markets and less to the U.S. Volkswagen AG could build another U.S. assembly plant. Mazda and Mitsubishi, which rely entirely on imports to the U.S. market, may have to quit the U.S. market or pay other manufacturers to assemble their cars, Luria said.
In its current form, the proposed border tax could lead to the production of up to 1 million additional vehicles in the U.S. and 50,000 more jobs at car and part assembly plants, Luria said.
In a separate report Wednesday, Colin Langan, an analyst at UBS Securities LLC, said the proposed border tax could raise average prices in the U.S. by about 8 percent, or $2,500 per vehicle. That's enough to reduce annual sales by about 2 million vehicles, he said.
Langan said he expects a draft bill to be released in late February or early March. He pegged the chances of a border tax being enacted at less than 50 percent. The tax has a good chance of making its way through the House of Representatives but is "very unlikely" to pass in the Senate, Langan said.
Business on 02/07/2017