Parts Suppliers

Business Model Under Threat

  • Why it matters

    Why it matters

    German auto suppliers have made major investments in Mexico to profit from low-cost labor there and to export their products to the U.S. That business model has been thrown into doubt by Donald Trump.

  • Facts


    • Donald Trump, due to be inaugurated as U.S. president on Friday, has threatened to impose heavy import taxes on foreign companies that build cars in Mexico and export then to the United States.
    • Shares in German carmakers dropped Monday after Mr. Trump reiterated his threat in a media interview, this time singling out BMW.
    • German auto components suppliers have made heavy investments in Mexico — but import tariffs would hit U.S. manufacturers too.
  • Audio


  • Pdf
Tire Manufacture As Continental AG Focuses On Profit Amid Growth Outside Car Parts
Parts manufacturers like Continental have as much to lose from Trump as the carmakers they supply. Source: Bloomberg

Less than half a year ago, Germany’s top auto lobbyist was still waxing lyrical about Mexico and the opportunities it presents.

“Mexico is a market with great potential and an interesting investment platform,” said Matthias Wissmann, the president of the Association of the Automotive Industry (VDA).

Mexico, he said, had negotiated free trade deals with more than 46 nations, which made it an ideal place from which to make cars for the U.S. market, he said.

Donald Trump has now put that business model at risk, by bedevilling it and threatening to slap punitive import tariffs on all manufacturers who use it as a production base for exports to the United States. In an interview published over the weekend, he extended that threat to German carmakers.

That also affects auto components suppliers that tend to follow the automakers wherever they go. And if they take a hit from Mr. Trump’s policies, it’s not German manufacturers like BMW, Daimler and Audi that will be affected. Ford, Fiat Chrysler and General Motors rely on the German suppliers, too.

We hope you enjoyed this free article.

Subscribe today and get full access to market-moving news in Europe's leading economy.