European carmakers fear Trump fallout on trade, Iran

Germany’s mighty automakers wasted little time on Wednesday in voicing concern that Donald Trump’s election as U.S. president may damage trade, and with it their business.

“It is to be feared that the United States under a new president, just like China, will mainly focus on their own economy at the expense of international trade flows,” said the VDA, an association representing Volkswagen, BMW and Daimler along with other manufacturers and suppliers.

Trump’s surprise victory will rattle groups including BMW that have invested heavily in Mexican production to serve the U.S. market – as well as posing a potential threat to investments by Renault and PSA in Iran.

During his campaign, the real-estate tycoon pledged to unpick the North American Free Trade Agreement (NAFTA) as well as a breakthrough nuclear pact with Tehran, saying both were among the worst deals ever made.

Volkswagen (VW) boss Matthias Mueller said in Munich he hoped Trump’s election would not prove “more detrimental” to the company, as it negotiates a costly U.S. civil settlement after admitting it cheated emissions tests.

Trump has threatened to renegotiate NAFTA and slap tariffs on Mexican car imports to protect U.S. factory jobs, potentially forcing carmakers to rethink heavy investments.

The protectionist message resonated with blue-collar voters in “rust belt” states such as Pennsylvania and Ohio, who helped propel Trump to victory on Tuesday.

When Ford announced plans to shift small-car production to Mexico, Trump had also vowed to pressure the automaker to reverse course. “We shouldn’t allow it to happen,” he said.

German automakers are heavily exposed to any new trade restrictions with Mexico.

“Rhetoric around Mexican production, trade tariffs and a potential step-back in consumer confidence will likely weigh on stocks and auto demand,” brokerage Evercore ISI said in a note on Wednesday.

VW shares were down 2.3 percent at 1426 GMT, with BMW 1.9 percent lower and Daimler down 1.8 percent, outpacing a 1.4 percent dip for the broader European auto sector.

BMW broke ground in June on a plant in San Luis Potosi, Mexico, pledging to invest $2.2 billion by 2019 for annual production of 150,000 cars.

Three months later, VW’s Audi division inaugurated a $1.3 billion facility of the same capacity near Puebla. Audi will build electric and petrol Q5 SUVs in Mexico.

By 2020, Mexico will have the plant capacity to supply a quarter of all vehicles sold in the United States, according to consulting firm IHS Automotive, up from one in six in 2012.

Daimler also plans to begin assembling Mercedes-Benz vehicles in 2018 from a $1 billion facility shared with Renault-Nissan.

The company employs 22,000 workers in the United States and aims to “build a constructive dialogue with the new administration”, a Daimler spokesman said.

European carmakers and other businesses had also been hoping a victory for Democrat nominee Hillary Clinton would clear remaining obstacles to large-scale investments in Iran, 16 months after a breakthrough deal to curb its nuclear program.

Financial institutions are still too wary of U.S. sanctions to bankroll new deals, bankers have said, with the prospect of a Trump victory adding to their concerns.

But Renault and PSA, the maker of Peugeot, Citroen and DS cars, have already begun ramping up investments and production in a market once dominated by the French.

PSA, which has announced two manufacturing ventures with local partners, relies on Iran for 15 percent of its global car sales, while Renault unveiled its own production investment in September. Both groups declined to comment on Wednesday.

Weeks before the election, however, PSA Chief Executive Carlos Tavares expressed hope that Trump’s words on scrapping the Iranian nuclear deal would never translate into action.

“There can be quite a gap between what’s said on the campaign trail and what is done after the election,” Tavares said at the Paris auto show, adding Iran presented a “major opportunity” for the group.

“It’s an opportunity we are not going to pass up, especially since our presence is 100 percent compliant with international rules,” he said.

Source: Reuters

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