Warning About Mercedes Sales Could Foreshadow Problems for US Car Companies

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Daimler, the company that owns Mercedes-Benz, has forecast that car and van sales likely will be hurt by the potential global trade war. Given that the global distribution of General Motors Co. (NYSE: GM) and Ford Motor Co. (NYSE: F) products, the warning will be matched by the U.S. companies, and probably soon.

Daimler management wrote:

Today, due to current developments, Daimler AG has made a new assessment of the earnings potential for the year 2018. From today’s perspective, the decisive factor is that, at Mercedes-Benz Cars, fewer than expected SUV sales and higher than expected costs – not completely passed on to the customers – must be assumed because of increased import tariffs for US vehicles into the Chinese market. This effect cannot be fully compensated by the reallocation of vehicles to other markets.

While most GM and Ford cars and light trucks sold in China are made in China, the effects of tariffs will be muted. However, that does not mean they will not undermine earnings to some extent. The same holds true for U.S. car company sales to European Union nations. Tariffs proposed on German luxury cars will cause a backlash, and Europe pushes to punish American manufacturers for the actions of the Trump administration.

A trade war between the United States and China could open another door of retaliation, which would have been unimaginable just months ago. China could tax sales of U.S. cars made in the People’s Republic. Among the reasons that may not happen is that U.S. car companies have Chinese partners, which means any action would harm local manufacturers as well. That does not mean that China’s government would not take such measures in the midst of the economic panic that a huge trade war would cause.

Daimler’s cars are not made and distributed geographically the way that Ford and GM products are. However, trade wars advance in unpredictable ways, and the two manufacturers are not immune from the rapidly changing and deteriorating relationships with both China and Europe.