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Europe’s carmakers look forward to US trade pact

New York Times | March 6, 2013

Europe’s carmakers look forward to US trade pact


GENEVA — As the industry convenes here for the Geneva auto show amid the worst European car market slump in decades, there is at least one ray of hope: the green light President Barack Obama recently gave to negotiations for a U.S.-E.U. free-trade pact.

Prospects for a trade pact have brightened the spirits of automakers along with many other types of Continental companies. And not only because it might make it easier for their products to compete in America’s giant consumer market.

European auto companies, particularly German ones, want to make it easier to sell cars they now make in the United States in their home markets.

“I am a big advocate of a free-trade agreement with the United States,” Norbert Reithofer, the chief executive of Bayerische Motoren Werke, said here on Tuesday. An agreement could add hundreds of millions of euros annually to BMW’s revenue, in part by easing restrictions that now add tariffs to the cars his company makes in Spartanburg, South Carolina, but ships back to sell in Germany and other European countries.

Mercedes faces similar issues with the vehicles it makes in Tuscaloosa, Alabama. Right now, a Mercedes M-Class sedan made there carries a 10 percent European Union import tariff not levied on Mercedes sedans made in Rastatt, Germany.

Companies decide where to manufacture based on many factors including labor costs, taxes and currency risk. With a trade pact in place, though, tariffs and regulations might no longer need to be part of that calculation. Whether their business is cars, instant coffee or carbon steel, with corporations that work both sides of the Atlantic, the old-style notions of import-vs.-export and country of origin may no longer obtain.

European companies like Siemens, Nestlé and ThyssenKrupp have manufactured products in America for decades. But usually those were products destined for U.S. buyers. Once a free-trade pact is in place, it might make more sense for companies to export those products back to Europe.

The United States and the European Union are each other’s biggest trading partners, and a pact is seen as a cheap way for both sides to generate growth. But European automakers in particular could use a lift. Europe’s auto market has all but collapsed since the financial and economic crisis of 2007; last year, the number of vehicles sold in the Union was the lowest since the mid-1990s.

German automakers, which now sell more cars in the United States than they do in Germany, are particularly eager for a trade deal, which some optimists hope could be reached by the end of next year. A trade pact would no doubt intensify competition in the U.S. auto market, particularly at the premium end, by making it easier for BMW and Mercedes to export to the United States. But the benefits could also flow the other way.

What is more, a free-trade pact could create jobs in the United States, said Joachim Schmidt, a member of the Mercedes-Benz management board who is responsible for sales. Mercedes plans to manufacture the next generation of its C-Class sedan in Tuscaloosa as well as other locations beginning next year, Mr. Schmidt said during an interview here.

Momentum toward a pact has been building since Mr. Obama endorsed efforts to begin formal negotiations in his February State of the Union address.

While the negotiations will be complex, officials have already agreed informally on the broad outlines of a treaty in preliminary talks that concluded earlier this year. That is why trade representatives on both sides of the Atlantic have said they could reach a formal agreement by the end of 2014.

For the first time, said Dieter Zetsche, the chief executive of Daimler, “leadership on both sides have been in favor.” But he quickly added, “There is a still a long way to go.”

Tariffs are not the only issue. In the case of automakers, a trade accord ideally would harmonize safety requirements and emissions standards, so that the same car built in Europe could be sold in the United States, and vice versa, without modifying bumpers, headlights and other components.

Some industry executives are doubtful that American and European regulators can agree to accept each other’s crash tests and other standards. “It’s very difficult to do,” said Stephen T. Odell, president of Ford of Europe. The company exports the C-Max compact van made in Europe to the United States, with the necessary modifications, and is planning to export the Ford Mustang to Europe, which will also require various adjustments to meet European regulations.

Sergio Marchionne, the chief executive of Fiat and Chrysler, said here that he was concerned that efforts to synchronize regulations could lead to more red tape rather than less. But he noted: “I have a lot of hope. President Obama made this an important item on his agenda. We’re certainly willing to work with authorities to make it happen.”

A free-trade pact could help Fiat as it seeks to reintroduce its Alfa Romeo brand in the United States. Mr. Marchionne said the long-awaited return of Alfa would come this year when the company began selling its 4C sports car in America. Alfa presented the two-seat coupe in Geneva this week.

Noting that Dustin Hoffman drove an Alfa in the classic 1960s movie “The Graduate,” Mr. Marchionne said the brand had a good heritage in America and was “uniquely revivable.”

Volkswagen could also benefit from a trade pact, though probably less than BMW or Mercedes. Since 2011, VW has been producing a version of its Passat in Chattanooga, Tennessee, which has helped revived its American sales. But the Passat built in Tennessee is designed for American consumers, and VW is not expected to export it to back to Europe.

Volkswagen’s Audi unit, which has been able to improve U.S. sales recently, would also benefit from an accord. Audi builds most of its cars in Europe.

The European carmakers least likely to get much benefit from a trade deal the French companies.

Renault and PSA Peugeot Citroën abandoned the U.S. market decades ago, and as they struggle financially back home, it is unlikely they will return anytime soon.

There is also some wariness among the European manufacturers, like Ford, that focus on selling lower-priced models. They still feel burned by a trade pact with South Korea that they complain opened up Europe to Hyundai and Kia, which have been gaining market share, without providing reciprocal benefits to European companies — mainly because the Korean domestic market is so relatively small.

Mr. Odell of Ford said that political leaders should not expose European carmakers to more competition from abroad, unless Europe’s national political leaders were also going to stop interfering with their attempts to close unprofitable factories or otherwise cut costs. French carmakers have faced such resistance from Paris, for example, and General Motors’ Opel unit in Germany has struggled with unions backed by state politicians.

“You have to allow people to restructure,” Mr. Odell said. “You can’t have it both ways.”

 source: New York Times