Another Six Months of Uncertainty for the Auto Industry - The Wall Street Journal

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Stephen Wilmot

Stephen Wilmot
The Wall Street Journal
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May 16, 2019 10:31 a.m. ET

Investors can pencil a bout of volatility in auto stocks into their calendars for November.

President Trump’s dispute with China is hogging the headlines, with good reason, but he also has other targets in his sights, notably the German and Japanese car industries. These got a reprieve Wednesday, but only a temporary one. Worries are bound to ramp up again in the fall.

The Trump administration had been hoping to issue a decision this week on whether to impose much higher tariffs on imported cars and parts, but it has put the question off for six months. There are likely two reasons. First, Mr. Trump may be preoccupied with getting a deal with China and reluctant to fight live battles on multiple fronts. Second, negotiations with Europe and Japan are ongoing and wouldn’t be helped by an aggressive move.

BMW ’s BMW -0.29% share price shows how attuned investors are to questions of trade. Having been down almost 2% in European afternoon trading Wednesday, the stock finished the day up 3%—its best daily performance for almost 18 months. The other German car stocks, Daimler and Volkswagen , registered similar reactions. All three companies export luxury cars in large numbers to the U.S. as well as building vehicles locally.

Mercedes Benz cars at the automotive terminal at the port of Bremerhaven, northern Germany. The company exports luxury cars in large numbers to the U.S. Photo: focke strangmann/EPA/Shutterstock

More counterintuitively, U.S. car stocks also jumped. Tariffs are supported by the union of United Automobile Workers but not Detroit management teams, which worry that the tariffs would raise component costs without giving them a competitive edge. The popularity of all-American pickup trucks means that GM, Ford and Fiat Chrysler don’t compete as directly with Japanese and German car makers as they used to. Where they do compete, the German or Japanese-branded vehicles are often made on U.S. soil—the result of localization strategies that started after President Ronald Reagan limited Japanese car imports in 1981.

Unlike his tough stance on China, Mr. Trump’s plan to use Cold War era national-security rules to tax imported cars is opposed by broad swaths of the Washington establishment as well as the auto lobby. That makes it hard to imagine the administration would actually go ahead with the tariffs. Even so, the threat—no doubt bolstered by the occasional presidential tweet—will hang over the industry for another half-year at least.

Investors who cheered the industry’s lucky break on Wednesday may soon wake up to the cost: another six months of uncertainty.

Write to Stephen Wilmot at stephen.wilmot@wsj.com

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https://www.wsj.com/articles/another-six-months-of-uncertainty-for-the-auto-industry-11558017068

2019-05-16 14:31:00Z
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