Foreign Car Tariffs Could Lift Detroit

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The Trump administration may do what U.S. car makers could not do. That is to reverse their eroding market share. The U.S. Department of Commerce has started a probe of the whether foreign manufacturers unfairly undermined U.S. makers.

There was a time in the 1960s when General Motors Co. (NYSE: GM) held 50% of the U.S. market. That is now down to 18%. While GM is unlikely to reclaim all the loss, a statement by Commerce Secretary Wilbur Ross indicates it may get the chance to improve its position. He said:

There is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry, thorough, fair and transparent investigation.

The comment begs the question of whether foreign car companies did better in the United States because they made what the public perceived to be better cars. For years, most consumer surveys of car buyers indicated a preference for Japanese cars, for example, due to quality. In many of these studies, U.S. car companies have closed that gap in recent years.

Whatever the reason for the probe, Ford Motor Co. (NYSE: F) and GM in particular could benefit. In the past five years, Ford shares are down 27%. GM’s are up 12%, but the S&P 500 is up over 67% in the same period. Many of the changes can be attributed to foreign sales trends and, more recently, competition for self-driving and electric cars. But GM and Ford have been unable to hold the line in U.S. sales. Ford in particular has been troubled. It recently announced it would cut sales of all but two of its cars in the United States. It made the decision because of the rotation of consumers toward SUVs, crossovers and pickups.

Ford and GM also stand to gain in their luxury divisions. Ford’s Lincoln and GM’s Cadillac have been decimated by the success of Toyota’s Lexus brands, Honda’s Acura and Germany’s BMW, Mercedes and Audi. It is worth noting that some of these companies manufacture their cars in the United States, which means they may be partially buffered from a Trump import tariff.

The U.S. car companies may get a large lift, thanks to an action that could offset what they could not do themselves.