Trump tariff threat will force Audi to open a huge manufacturing plant in the U.S.

You either make cars here in the USA or pay a 25% tariff Trump tells automakers.
You either make cars here in the USA or pay a 25% tariff Trump tells automakers… USA companies pay for cars sold in Europe and China

Audi generated 5.06 billion euros ($5.7 billion) of global operating income last year, excluding items, making it the biggest single contributor to Volkswagen’s overall profit. About 700 million euros of the brand’s earnings before interest and taxes, or 15 percent of its total, comes from the U.S., estimates Michael Dean, an analyst with Bloomberg Intelligence.

The sum would be essentially wiped out if President Donald Trump followed through with a threat to impose a 25 percent duty on automotive imports from the European Union, BI estimates. VW Chief Executive Officer Herbert Diess and other German car executives met with President Donald Trump on Tuesday in a bid to prevent the move.

Diess floated a number of options to increase U.S. output, including building a new plant or locating some production in Ford Motor Co. factories. Volkswagen is in advanced negotiations to expand the work at its plant in Chattanooga, Tenn., which still has extra capacity, but there are other options as well, Diess said.

"We need additional capacity here in the United States," Diess said Tuesday. “We need an additional car plant for Volkswagen and Audi combined."

For Audi, a U.S. factory would help narrow the gap with Daimler AG’s Mercedes-Benz unit and BMW AG in terms of global reach. Audi has been the market leader in China for years, but a spat with dealers hurt deliveries last year. In Europe, the manufacturer is struggling to draw a line under the 3-year-old diesel-emissions scandal.

No decision is imminent, Audi strategy chief Roland Villinger said Wednesday. The brand’s growing presence in North America and the gradual rollout of new technology shared across the VW group work in favor of eventually establishing local production, he said.

“It’s something we’re looking into frequently," Villinger told Bloomberg at the Handelsblatt auto industry conference in Wolfsburg, Germany.

White House Seeks More German Auto Production in U.S. says Ross

The White House is looking to whittle down a $30 billion automotive trade deficit with Germany with increased production in the U.S., Commerce Secretary Wilbur Ross said ahead of a meeting with automakers in Washington Tuesday.

Of the $65 billion trade deficit the U.S. has with Europe, about $30 billion is from trade with Germany for autos and auto parts. The goal is to reduce that deficit, “hopefully with increased production in the U.S.," Ross said on CNBC.

Top executives of Volkswagen AG, Daimler AG and BMW AG have a balancing act to pull off when they meet with Trump administration officials about potential tariffs on U.S. imports from Germany.

The carmakers don’t want the U.S. to enact possible levies of as much as 25 percent on billions of dollars worth of cars they ship in from Germany every year. But they will be careful not to become entangled in negotiations that rest squarely in the hands of European Union trade officials, according to people familiar with the matter.

VW CEO Herbert Diess, Daimler’s Dieter Zetsche and BMW Chief Financial Officer Nicolas Peter accepted a White House invitation to seek clarity on making long-term U.S. investment decisions, said the people, who asked not to be named discussing non-public information.

Ross acknowledged in the CNBC interview that automakers are investing in electric-car programs and encouraging production of those products in the U.S. is “one of the big objectives we have."

BMW is mulling setting up a production site in the U.S. for engines and transmissions, and VW has been considering potential locations to make electric cars in North America, including at its existing plant in Chattanooga, Tennessee.

VW announced last month that it will invest 1.2 billion euros ($1.4 billion) to revamp a plant in eastern Germany into Europe’s largest electric-car factory, giving chase to Tesla Inc.’s move into more affordable zero-emission vehicles. Bloomberg

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