US tariffs, auto trade and the limits of the ‘Yank Tank'

Yahoo

07-04-2025

The US does not export a significant quantity of passenger vehicles to the UK or Europe. It has never done so, nor indeed, is it likely to.
The reason is simply that American passenger vehicles – or domestic iron as they are often lovingly known are, with very few exceptions, just that. Domestic. Moreover, the bulk of US production comprises of large to extremely large pick-up trucks and SUV's, which are designed and manufactured for domestic consumption and ill-suited to European roads.
For example, let's take on-street city parking. Imagine driving a supersized US pick-up or SUV on a dark and damp November evening in London, frantically searching for a parking spot on an Edwardian terraced street lined to capacity with compact hatchbacks, a sprinkling of stylish coupes, saloon cars and mid-size SUVs. Near impossible to find anything remotely suitable on a road whose infrastructure was mainly conceived and built by Victorian engineers in the 19th century.
What about accessing multistorey car parks? Forget about it, height restrictions and manoeuvrability, too low and too small. Furthermore, the overall aesthetics of American cars do not conform to European design principles. The sheer bulk of these vehicles, coupled with their 'gas-guzzling' V6 and V8 engines, make them wholly inappropriate and thoroughly unappealing to the overwhelming majority of European consumers.
America's best-selling vehicle is the Ford F-Series pickup truck. The brand's entry-level model is the F150 and, by US standards, is fitted with a small 2.7 litre V6 which delivers 19 mpg on the urban cycle. The standard fuel tank holds 23 gallons. Customers can, if they so wish, opt for the larger 26-gallon tank or indeed go the whole hog and select Ford's 5.2 litre supercharged V8. Need I say more? And crucially, we come to gas prices for US consumers – petrol on this side of the pond. While considered high in the US at circa $3.64 (equivalent to £3.12/3.62 € per imperial gallon), they are a real bargain when compared to pump prices in the UK and Europe, currently around $8.70 or £6.90/8.04 € per gallon. I rest my case.
By contrast, the appetite for European vehicles among American consumers has always been strong and remains so, driven by factors such as design, performance, quality and of course, status. This imbalance in trade highlights a fundamental issue: if the US aims to achieve a trade balance in the automotive sector, it must first produce vehicles that are attractive to European consumers, rather than simply penalising the European auto industry for manufacturing cars that American consumers want to buy. Slapping a 25% tax on European cars will not make Europeans buy American iron but simply deprive Americans of choice. Consumers in 'the land of the free and the home of the brave' simply love choice, be it in which car they drive or which size bottle of tomato ketchup they buy.
Notwithstanding the above, the recent implementation of a 25% tariff on all vehicles imported from the UK and Europe to the US has sent shockwaves through the automotive industry, creating a complex and challenging situation for Original Equipment Manufacturers (OEMs), National Sales Companies (NSCs), importers, franchised dealer networks and ultimately, American consumers. This drastic measure has far-reaching consequences that are only beginning to unfold, with the first major announcement coming from Jaguar Land Rover (JLR) in the UK.
JLR's decision to halt all shipments of cars to the US for four weeks, effective Monday, 7 April 2025, marks the beginning of what is likely to be a series of strategic moves by European automakers. This pause in operations will provide JLR, in collaboration with JLR USA and their franchisees, the necessary time to strategise on how best to mitigate considerable increases in sticker prices while balancing OEM, distributor, and dealer profit margins. This delicate balancing act is crucial for maintaining competitiveness in the US market whilst simultaneously absorbing the impact of the tariff.
As news of JLR's decision spreads, all eyes are now on other major European manufacturers whose products are highly sought after in the American market. Companies such as Volkswagen Group, Mercedes-Benz, and BMW are undoubtedly engaged in intense deliberations to address this monumental challenge. In the coming days, we can expect a flurry of press releases from their respective headquarters in Wolfsburg, Ingolstadt, Stuttgart, and Munich, outlining their respective strategies to tackle the tariff issue.
Madox Square LLP collaborates across the industry. Moreover, over the past days, I have been speaking with executives across Europe and the US, it is clear that the atmosphere remains febrile. The task of finding a satisfactory solution is fraught with difficulties, requiring a delicate balance between maintaining market share, preserving profitability and minimising the impact on consumers. Industry leaders emphasise the importance of keeping a level head and not allowing the emotional aspects of the situation to cloud judgment or decision-making processes.
It is important to note that these manufacturer-specific responses will be independent of any retaliatory actions that the European Union may decide to impose. The potential for escalating trade tensions between the US and Europe adds another layer of complexity to an already volatile situation.
The imposition of the 25% automotive blanket tariff also raises questions about the long-term strategy of the US government in addressing trade imbalances. A trade war is unlikely to be the path to prosperity for the US – in fact, many industry experts believe it could have the opposite effect. By artificially inflating the prices of popular European vehicles, the tariff may lead to decreased sales, job losses in the distribution and retail sectors and reduced consumer choice. Furthermore, John Murphy, Managing Director at Bank of America, said the increased cost from tariffs could reduce US car sales by up to 3 million units. This number represents a reduction of 20% of sales on the 15.9m vehicles sold in 2024.
Ultimately, the tariff could very well have unintended consequences for the US automotive industry. American manufacturers who rely on imported vehicles will undoubtedly face increased costs and complications in their supply chains. In turn, higher component costs will lead to increased prices for domestically produced vehicles as 40% to 60% of components rely on the global supply chain, thus creating a ripple effect throughout the entire automotive market.
Paul Bennett, Senior Partner at Madox Square LLP.
"US tariffs, auto trade and the limits of the 'Yank Tank'" was originally created and published by Motor Finance Online, a GlobalData owned brand.
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