U.S. Border Tax Threatens Auto Jobs on $3,300 Sticker Shock

(Bloomberg) -- Republicans' proposals to tax imports would make most automakers unprofitable in the U.S., strain consumers and lead to job losses instead of gains, according to a study by consultant Roland Berger GmbH.

The proposals by President Donald Trump and Republican lawmakers would boost the average cost of a car by about $3,300, sap demand and lead manufacturers to shrink their U.S. workforce, the Munich-based firm said Wednesday in a presentation. Because parts are sourced around the globe, all automotive companies would be affected.

“The border tax proposal will be a zero-sum game at best,” Wolfgang Bernhart, a Roland Berger partner, said in a statement. “The more likely outcome will be intense margin pressure and reduced vehicle sales -- possibly resulting in further job losses.”

Carmakers gathered this week at the Geneva International Motor Show are grappling with political headwinds against free trade in regions where they previously had little cause for concern. Trump has attacked U.S., Japanese and German automakers for building vehicles in Mexico and his administration has picked fights over what it views as unfair trade practices in Europe.

At the same time, the Republican-led House of Representatives is considering a so-called border-adjustment tax -- applied to companies' imports and sparing their exports -- as a way to encourage companies to produce goods in the U.S. and reduce tax rates.

Read why Trump's border tax gets taken seriously

Sparing Nobody

An expected boost to consumer spending from lower taxes won't be enough to offset the increase in vehicle prices for the average household, Roland Berger said. U.S.-built cars are also affected because of the amount of foreign-sourced components, Roland Berger said.

Costs for General Motors Co., Ford Motor Co. and Fiat Chrysler Automobiles NV would rise by an average $1,500 per vehicle, with Asian producers facing an increase of $2,000. European automakers' costs would jump by an average of $5,300.

The consultant's estimates are in line with how Jim Lentz, chief executive officer of Toyota Motor Corp.'s North American operations, sees the border tax proposals having on the Japanese automaker.

Camry Cost

The Toyota Camry family car, which ranks highest on the Cars.com American-Made Index that takes into account where U.S.-built vehicles and their parts are made, would see about a $1,000 price increase, Lentz said in January. For vehicles with less U.S.-sourced content, the premium could run as high as $4,000, he estimated.

“I don't think anyone would disagree that we need to reform taxes overall in the U.S., especially corporate tax, to be more competitive on a global basis,” Lentz in an interview. The border tax “is just tough for this industry” and would cost jobs, he said.

The American International Automobile Dealers Association, a trade group that represents 9,500 franchises in the U.S., is hosting a dealer “fly-in” on Capital Hill this week to oppose the border-adjustment tax.

For automakers, Roland Berger cast doubt on the business case for moving production to the U.S. Small and medium-size models are unprofitable under current conditions, the consultant said.

“Market access and the removal of trade barriers are crucially important for worldwide growth,” Matthias Wissmann, president of the Paris-based International Organization of Motor Vehicle Manufacturers, said Wednesday in a speech in Geneva. “Around 75 percent of a car's added value is generated by suppliers -- from many countries.”

--With assistance from John Lippert

To contact the reporter on this story: Elisabeth Behrmann in Geneva at ebehrmann1@bloomberg.net.

To contact the editors responsible for this story: Chris Reiter at creiter2@bloomberg.net, Craig Trudell, David Welch