Donald Trump’s US presidential election campaign rally in Georgia last month was strangely familiar, with the Republican candidate telling supporters: “I want German car companies to become American car companies.”
Subject to his winning a second term in the White House, Trump promised that any foreign automaker that chooses to increase production in the United States would receive the lowest taxes, energy costs and red tape. But then came a new threat of “very substantial tariffs” on vehicles not made in the United States. The rhetoric had strong echoes of Trump’s 2016 election campaign pledge to Make America Great Again by bringing back manufacturing from abroad.
For some, like Detroit-based automotive analyst John McElroy, the new remarks were nothing more than typical Trump hyperbole that they think he will struggle to enact. “It’s hard to parse what is Trump bombast and what will be Trump policy,” McElroy told DW. “He says a lot of crazy things. If he wins, we’ll get a clearer idea of what he intends to do.”
German firms upped US investments
Despite criticism from Trump during his first election campaign in 2016, German automakers avoided a threatened 35% tariff by negotiating new investments in US production, including Volkswagen’s electric vehicle (EV) expansion in Tennessee, $1 billion (€930 million) promised by Mercedes Benz in Alabama and BMW’s ramping up of production in South Carolina.
But Jacob Kirkegaard, senior fellow at the Brussels-based think tank, Bruegel, thinks that German automakers should be “very worried” as Trump’s new plans could be even more costly for them.
“All the investments that the German automakers made into the US in recent years isn’t going to save them. Because of the level of investment and integration made in recent years, they will probably face a bigger supply chain shock than most others,” he told DW.
Any Trump U-turn on electric vehicles will hurt
At issue is Trump’s vow to roll back subsidies for electric vehicles — a key plank of US President Joe Biden’sgreen investment boom to tackle climate change. Much of the cash underwritten by German carmakers in the US over the past six years has been to help ramp up EV production. So any move to reverse course could require a separate supply chain for the continued production of combustion-engine vehicles in the US, Kirkegaard argued.
“We’ve seen what happened in Germany when subsidies were eliminated, sales of electric vehicles plummeted,” warned McElroy, who also is the president of Blue Sky Productions which created the Autoline Network that deals with auto industry news and analysis.. “I think we could see the same thing here [in the US], which would affect not only the German brands but anyone pushing into electric vehicles.”
Trump takes aim at Mexico-based car production
German brands could get further caught up in Trump’s ultimatum to producers in Mexico. The Latin American country is a major manufacturing hub for the likes of Volkswagen, BMW and Audi — mostly for the US market. Trump has frequently threatened automakers that move their production to Mexico, where costs are lower, with a 200% tariff.
“Mexico is a very important location for the German automotive industry,” the German Association of the Automotive Industry (VDA) said in a statement earlier this month, published in Die Welt newspaper. “German manufacturers have their own plants there, where a new production record was achieved with 716,000 passenger cars last year.”
German carmakers operating in Mexico also benefit from favorable trade conditions thanks to the United States-Mexico-Canada Agreement (USMCS), formerly NAFTA, which was negotiated under Trump’s presidency and is due for review in 2026.
Just like at home, where car manufacturers complain about a shortage of skilled workers, the United States is also seeing a major skills gap due to decades of offshoring and as older auto workers retire.
“We are already seeing that German companies based here [Mexico] are having to lend staff to their sister companies in the United States to fill the gaps,” Johannes Hauser, managing director of the German-Mexican Chamber of Industry and Commerce (AHK). told German public broadcaster ARD’s Tagesschau news site earlier this month. “That shows how dramatic the situation has become in the US.”
Battle for Europe, China and now the US
With Trump threatening even more protectionist policies, German car brands now face a perfect storm in an ultra-competitive global auto sector. They’re also facing slower growth in Europe and have been somewhat usurped by Chinese brands in the race to launch new EV models, which is hurting sales in China and Europe. The German producers could live to regret their joint ventures with Chinese automakers if they get caught up in the ongoing US-China trade war.
“If the US government says ‘Not only do we not explicitly want Chinese branded cars in the United States, we also don’t want cars that rely on any form of Chinese technology,’ that could also include German-branded cars,” Kirkegaard told DW.
Unlike their Chinese counterparts, Germany’s car brands are still highly profitable, have strong brand awareness and are held in high esteem, which will continue to help them overcome these trade hurdles.
“I, for one, am certainly not willing to write them off,” said Kirkegaard. “They will get through this, but they will likely come out, in terms of employment, significantly smaller.”
Edited by: Uwe Hessler
