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German car bosses explain their business

Boehme Henrik Kommentarbild App
Henrik Böhme
December 5, 2018

Invited by the US administration, three German car bosses went to Washington — an unusual move. The upshot is that, if anything, there's probably more understanding now for each other's positions, say DW's Henrik Böhme.

Mercedes plant in Tuscaloosa/Alabama
Image: Daimler AG

Things used to be different in the old days. When a carmaker wanted to open a new plant, local authorities would offer tax incentives, praise the location's skilled workers, the weather on the ground and everything else.

That has changed. Three German car bosses were invited to Washington to be told by the US administration they should invest more in the US rather than in China, Turkey or elsewhere. And they were told that if they don't play along, higher tariffs would be imposed on their imported cars.

The US' auto industry trade deficit with Germany is said to amount to $30 billion (€26.5 billion), because a lot more German cars and car parts are exported to the US than the other way round. Maybe, this is because the likes of General Motors do not really produce the cars that German consumers dream of.

On the other hand, Volkswagen, Daimler and BMW aren't among the top players on the US market either — they have a combined market share of only 8 percent there (Toyota alone accounts for 14 percent).

Nevertheless, US President Donald Trump is fed up with seeing so many Mercedes cars on 5th Avenue in New York. The question is: Why then is he encouraging German carmakers to produce more in the US?

Tricky games

It may not be too far-fetched to believe that the president and his economic advisers are employing this policy to discipline GM. The US market leader announced recently it would shut down six plants in North America (four of them in the US) and cut 15,000 jobs. Maybe Trump's hidden message to GM is: if you don't want it enough, foreign carmakers can pick up the slack.

DW business editior Henrik Böhme
DW business editior Henrik Böhme

The three German car bosses who went to Washington didn't really have any new things to offer. BMW has long been mulling a new plant for engine production in the US. They just renewed their intention ahead of the meeting in the White House and earned some praise from the president on Twitter.

VW chief Herbert Diess for his part reiterated his company's resolve to cooperate with Ford. And as Volkswagen is in the middle of an electrification campaign, it may just as well produce some electric cars in the US — that shouldn't be much of a problem. Daimler, too, announced it would invest another $1 billion in the United States.

Higher tariffs or not?

"I'm a man of tariffs,” Trump said shortly ahead of his meeting with the German car bosses, although his remarks on Twitter may primarily have been directed at China. However, the carmakers themselves are not in a position to negotiate with Trump on tariffs — only the European Commission has a mandate to do so.

But there's a strategy involved in that, too. It's in effect telling the Europeans we don't really need you. Of course, German carmakers would hate to see a 25 percent tariff imposed on their car exports to the US. Let's face it, it's hard to justify the fact that current US import duties on cars are so much lower than vice versa.

Why not harmonize tariffs, or do away with them completely? Such a deal would have been possible in the framework of the TTIP free trade agreement between the EU and the US, but some starry-eyed idealists made the TTIP talks stall.

So what results did the talks in the White House yield? Was it just a waste of time and effort? VW's CEO said after the meeting he was optimistic that higher tariffs could be avoided, and his counterpart from Daimler agreed. We don't know, though, whether those numerous Mercedes on 5th Avenue are still getting up Trump's nose.

Boehme Henrik Kommentarbild App
Henrik Böhme Business editor focusing on international trade, cars, and finance@Henrik58
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