European Automotive Companies to Gain from US-China Trade Truce

European Automotive Companies to Gain from US-China Trade Truce

Two of Germany’s largest automakers should be the immediate beneficiaries of a reduction in trade tensions between the United States and China. Currently, US automakers are exporting more of their cars to China than imports from that market, and BMW AG and Daimler AG are leading the way with their US-made cars. Over the years, both companies have invested heavily in the United States to build factories supplying not only US drivers, but also export markets, including China. In 2017, US manufacturers exported close to 270,000 passenger cars to China, worth $ 9.5 billion, but imported only 58,000 vehicles, worth $ 1.5 billion, coming from the largest car market in the world. Of the units exported to China by US automakers, BMW and Daimler accounted for 67% of the total. Ford is third and exports nearly 45,000 cars to customers in China. The $ 8 billion trade surplus with China in the automotive sector represents a small part of its overall trade deficit with the country, but the automobile industry is an expensive element that creates jobs that are well paid as well.

German Automotive companies to reap the benefits

BMW first arrived in the United States in 1975 when BMW North America was established in Woodcliff Lake, New Jersey. In 1994, BMW opened its first full production site outside of Germany and its first US production site in Spartanburg, South Carolina. Since the plant opened, BMW has invested more than $ 9 billion on a 1,150-acre, 7-million-square-foot campus that currently employs more than 10,000 people. In 2017, BMW exported more than 270,000 X3, X4, X5, and X6 models, more than 70% of Spartanburg’s total production volume of 370,000 units, making BMW the largest exporter of vehicles in the United States. In 2017, BMW also paved the way for auto exports to China, sending more than 100,000 units to Chinese customers in Spartanburg.

The second largest US exporter of passenger cars in China in 2017 was Mercedes Benz USA (“MBUSA”), a unit of Daimler, which exported more than 72,000 Mercedes-Benz GL, GLE, GLS, and R-Class models. Headquartered in Atlanta, Georgia, MBUSA also has a long history in the United States. The company was officially established in 1965 but began selling Mercedes-Benz vehicles in America as early as 1952. MBUSA established manufacturing operations in the United States in 1995 by opening a plant in Tuscaloosa County, Alabama. With production of more than 310,000 vehicles, the Tuscaloosa plant is now the global production site for the GLE, GLS and GLE Coupes, as well as the North American C-Class sedan.

Since its opening, MBUSA has invested more than $ 6 billion in Tuscaloosa and now employs more than 3,700 people. It supports more than 10,000 jobs with local suppliers and service providers. In April 2018, MBUSA announced an additional $ 1 billion investment at its Alabama plant. Since luxury vehicles produced by BMW and MBUSA are expensive products, fares are an important consideration when both companies develop their global supply chain strategies. As a rule, car manufacturers prefer to produce their car models in the markets where they are actually sold. That’s why BMW and Daimler have both established assembly plants in China. In addition to rates and proximity to the consumer, the use of the facility, economic factors, and customer preferences are also important considerations.

China’s Role

Foreign participation in assembly operations in China has been limited to 50% until recently. Although this restriction disappears in 2022, international car manufacturers must take into account the fact that the profits of cars manufactured under a joint venture are shared with their Chinese partner. In addition, Chinese customers often prefer and will pay a premium for, products labeled “Made in USA”, even though the same product may be available from a Chinese joint venture.

About Anand Sai 84 Articles
Anand Sai has worked in the field of market research as an analyst and a consultant and has also operated at several leadership positions. He has an enormous experience with respect to the compilation of high-quality market research reports and boasts over six years of experience in end-to-end project management. Anand is a dependable voice in the market research field and has been named in some of the top industry publications. He is also a travel junkie and loves to explore new places with his friends.