Buick most at risk for GM if tariff imposed

The Buick Encore, which is made in Korea, made up 44 percent of the brand's sales in the first half of 2018.

DETROIT — Nine years after it was an unlikely survivor of General Motors' bankruptcy restructuring, Buick again finds itself in a precarious situation.

This time, the problem isn't weak products or an aging customer base, two areas where it has improved dramatically. It's the prospect that the Trump administration will impose a 25 percent tariff on imported vehicles at a time when more than two thirds of the Buicks sold in the U.S. are made overseas.

Such a tariff would have a much broader effect on Buick than GM's other three brands. It could put Buick in an untenable position in the U.S., which accounted for only 15 percent of the brand's 1.4 million global sales last year — while China made up 83 percent.

Though it has become one of the industry's top performers on customer-satisfaction and dependability surveys, Buick doesn't have the pricing power to pass such sizable cost increases onto U.S. buyers, pushing it more into direct competition with German luxury brands and its corporate sibling, Cadillac, analysts say. But absorbing the tariffs, which GM has vocally opposed, could harm Buick's long-term viability in the U.S. and force a major overhaul of the brand's lineup and production footprint.

"Buick is considered a premium brand but not a luxury brand," said Autotrader executive analyst Michelle Krebs. "It's hard for me to imagine that GM wants to absorb that cost because they're so fixated on profit margins."

Barra: Won't hypothesize

GM CEO Mary Barra and CFO Chuck Stevens last week said the automaker would take action to compensate for any new tariffs but that there are too many unknowns to comment on specifics.

"There's almost an infinite number of things that could happen and what exactly would be a part of it," Barra said during a conference call last week to discuss second-quarter earnings. "I'm not going to hypothesize. … We're an industry that has high-capital investments, so you don't move things on a dime."

Stevens echoed those remarks earlier in the day with reporters: "We will have to evaluate, ultimately, whatever plays out and course-correct from there, but I think it's too early to make any brand pronouncements on what we're going to do from a strategy footprint or otherwise perspective at this point."

Buick imports

Buick's only domestically produced nameplates are the LaCrosse sedan and Enclave crossover, both made in Michigan. They represented 33 percent of the brand's sales in 2017, as well as 31 percent in the first six months of this year.

Buick imports the Envision from China, the Regal from Germany, the Encore from South Korea and the Cascada from Poland.

The Encore is an upscale relation of the Chevrolet Trax, which is also sourced from Korea. The small crossover has been a runaway success since GM started importing it to U.S. dealerships in 2013. It has grown from 16 percent of the brand's sales in its first year to 44 percent through the first half of the year.

Korea trade pact

A saving grace for Buick could be the U.S.-Korea Free Trade Agreement, known as KORUS. The 2012 pact, which President Donald Trump already revisited in the spring, could be exempt from his tariffs.

Trump's main priorities have been renegotiating the North American Free Trade Agreement and other trade deals in which U.S. exports are taxed more than imports. Under KORUS, neither country imposes tariffs on vehicles.

Kristin Dziczek, vice president of industry, labor and economics at the Center for Automotive Research in Ann Arbor, Mich., said Trump could exempt South Korea, but it's too soon to tell.

"There's so much unknown at this point," she said. "It's hard to say what's going to be exempt."

Trump, she noted, exempted Korea from a 25 percent tariff on steel and 10 percent on aluminum he enacted this year. Instead, he imposed quotas on Korean steel and aluminum.

If GM could import the Encore tariff-free, then Buick would have three models without that extra cost. Those three make up 75 percent of Buick's U.S. sales, which is in line with the domestic production of GM's other brands, according to estimates from the Automotive News Data Center.

You can reach Michael Wayland at mwayland@crain.com -- Follow Michael on Twitter: @MikeWayland

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