In the years before he became president of the United States, Donald Trump owned luxury German cars. Now, pricey European convertibles are among the vehicles that could become rare on American roads if Trump’s proposal to slap tariffs on imported cars takes effect.
On Friday, Trump threatened to impose a 20 percent import tariff on all European Union-assembled vehicles, a move that could upend the industry’s current business model for selling cars in the U.S.
“The tariffs, if they materialize, would call into question the business case for many niche models we currently sell in the United States,” a senior executive at one automaker said. “Convertibles are a particular headache. With Brexit and U.S. tariffs, this market could shrink further.”
The executive said convertibles may not disappear if automakers can forge alliances to share production costs, or design vehicles that are less expensive to build alongside high-volume models.
Because of high pollution and scorching sunshine, convertibles are not selling in Asia, leaving the U.S., Britain and Germany as the largest potential growth markets. Potential tariffs between the EU and Britain after Brexit and yet more tariffs between Europe and the U.S. will shrink the market further, auto executives fear.
German automakers BMW, Daimler and Volkswagen operate assembly plants in the southeastern U.S. Those plants concentrate on building high-volume models, mainly SUVs and crossovers and some sedans. But they lack the flexibility to quickly and inexpensively shift production from one model to another in response to rapidly shifting tariff threats, industry experts said.
“The tariff discussion highlights why this flexibility is necessary,” said Ron Harbour, a manufacturing consultant with Oliver Wyman. “Those that don’t have it will suffer.”
A tariff of up to 25 percent would destroy the business case for foreign automakers to export to the U.S. models such as the $88,200 Mercedes SL roadster or Audi S5 Cabriolet -- and deliver a 4.5 billion euro ($5.24 billion) hit for Germany’s premium manufacturers, analysts at Evercore ISI said.
Convertible sales already are dwindling in the U.S., according to figures compiled by LMC Automotive. Sales fell from 177,000 in 2012 to 127,000 in 2017, and are expected to drop further to 113,000 by 2019, even without a tariff increase.
Mercedes is expected to sell about 20,000 convertibles this year in the U.S. and BMW fewer than 16,000, LMC projected.
“We expect convertible sales would be hit quite hard” by higher import tariffs, said LMC Senior Vice President Jeff Schuster.