On May 30, Donald Trump announced that the United States is imposing a 5 percent tariff on all Mexican imports. In addition, the American president promised that if the Mexican authorities did not take any steps to reduce the number of illegal migrants crossing the US border, then by next October the tariffs would be gradually increased to 25%. On June 8, tariffs were "lifted for an indefinite period", as the countries still managed to reach an agreement on migration policy, but the market has already reacted to the threat of strengthening American protectionism, and the auto industry, which is already going through not the best times, has responded most sharply of all.
The pressure of competition and the fight for innovation
In the largest markets - Europe, the US and China - automakers compete fiercely with each other for consumers. To stimulate sales, they have to constantly launch new car models and update old ones - the success of the sector is highly dependent on constant "feeding" demand, without which sales can quickly fall. In addition to the risks that businesses face in local markets, the development of the sector is complicated by a number of global factors, including cyclical slowdown in the global economy, trade wars and tightening of environmental legislation.
It is worth dwelling on the last of the noted factors. Today, automakers are forced to update their model lines in response to stricter environmental legislation and invest heavily in promoting more environmentally friendly but expensive electric vehicles. As it became clear after a series of high-profile scandals, violating the rules on exhaust emissions can be costly for corporations. As a result of tightening government control, some manufacturers are choosing to ditch diesel engines in favor of gasoline, and the increasing pressure of competition from Tesla is forcing them to complement their model lines with electric cars or at least hybrids.
Risks to the sector
In the short and medium term, automakers will have to work under pressure from the following factors:
- Increased market segmentation due to stricter environmental regulations: A good example of this risk is the situation that developed in California after the US government passed the so-called Clean Air Act. The problem for manufacturers is that local California authorities have the power to set their own emissions regulations - in other words, one of the largest domestic US markets could impose stricter environmental regulations than all other states, which will create additional difficulties for automakers. selling their cars in the American market.
- The end of a long period of economic growth in the Eurozone: the demand for cars in European countries is gradually decreasing following a slowdown in market growth - for example, in 2019, the Eurozone GDP will grow by only 1.4%, in 2020 - by 1.5 %, Coface experts predict. The worsening economic outlook is forcing consumers to cut costs and postpone new car purchases until better times - for example, in Western Europe, new car registrations fell 2.6% in the first four months of this year. Also, the Western European auto industry is threatened by Brexit, which could lead to a variety of hard-to-predict disruptions in production chains.
- Rising prices for basic materials following the US-China trade war: Rising purchasing prices for materials needed to make automobiles constrict carmakers' margins and force them to either lower product prices or put up with falling revenues. So, according to forecasts of a number of analytical agencies, in the United States, some popular pickup models will rise in price this year by $ 2,000-7,000. Threats from the US authorities to impose tariffs on imports of cars from Mexico, Europe and Asia have made the sector increasingly tense - especially given that countries affected by US tariffs are likely to respond with mirror measures.
