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Europe's carmakers vulnerable to Trump tariff threats

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Audi to bring key cars for U.S. market to North America -

CEO

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Mercedes to boost output in Alabama

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Big three German carmakers accounted for 73% of EU car

exports

to U.S. last year

By Victoria Waldersee

BERLIN, Feb 21 (Reuters) - Volkswagen's Audi will expand

output in North America and Mercedes will boost its U.S.

production as Europe's carmakers try to protect themselves

against U.S. President Donald Trump's tariff threats.

Trump has raised tariffs on aluminium and steel and

threatened a 25% tariff on imports from Mexico and Canada, as

well as on all autos and semiconductors, moves which will hit

European carmakers' finances when they are already battling to

bring down high costs in home markets and are fighting

competition from China.

The U.S. tariffs are expected to be high on the agenda when

EU trade chief Maros Sefcovic meets car industry representatives

as well as suppliers and battery makers in Brussels on Friday to

talk about unfair trade practices and market access for the

region's companies.

The trade chief met his U.S. counterparts in Washington

earlier this week and said he saw some willingness to reduce

tariffs on both sides.

In the meantime, the car companies are moving ahead with

their own plans.

Volkswagen's Audi, which currently has no

production base in the United States, plans to make its most

important cars for the U.S. market in the region and will

announce a specific site this year, its chief executive told

Reuters.

Mercedes-Benz's CFO Harald Wilhelm told investors

on Thursday that the luxury brand, which exports high-end

vehicles and sedans to the U.S. from Europe, will localise more

production at its plant in Tuscaloosa, Alabama to protect itself

from the rising trade tensions.

Europe's carmakers exported around 800,000 vehicles to the

United States last year, according to official U.S. trade data,

about four times the number of cars exported by the U.S. to

Europe.

And a large chunk of the U.S. car exports are from European

carmakers, leaving them footing the bill for the EU's 10%

tariffs on car imports from the U.S. BMW, for example,

sends around 90,000 cars from its Spartanburg plant in South

Carolina to Europe.

The big three German carmakers accounted for 73% of the EU's

car exports to the U.S. last year, according to research

platform JATO Dynamics.

"No matter which screw in the trade war is turned, German

carmakers are almost always the losers," said Guillaume Dejean,

auto industry expert at Allianz Trade, in a research note.

Mercedes-Benz and BMW, which are both major exporters from

the U.S., have U.S. production which gives them more flexibility

to reshuffle output and make room for local sales.

BMW's chief purchasing officer said earlier this week the

carmaker saw no need to negotiate a special deal for exemption

from U.S. tariffs, pointing to its large U.S. presence and good

relations with state government officials in South Carolina,

home to its Spartanburg plant.

BMW's CEO Oliver Zipse has called for the EU to heed Trump's

call to lower its 10% tariff on car exports from the United

States to 2.5%, in line with the current U.S. import tariff on

car imports from Europe. This would benefit BMW, which exports

90,000 cars a year to Europe from Spartanburg.

The wrangling over how to navigate tariffs comes at a tough

time for the German car industry, where VW is seeking to cut

output and jobs in a bid to lower costs.

Dejean said it was more urgent than ever for the industry to

find the cash to pay for increasing its defences against

competition and the trade tensions.

"It's a balancing act - of course it costs money to invest

in new markets, at a time when funds are tight," he said. "But

if not now, when?"