US tax on imports to derail Land Rovers

Embargoed to 0600 Tuesday March 5  File photo dated 02/03/11 of a view of the Jaguar Land Rover logo. Car giant Jaguar Land Rover today gave the economy a huge boost by announcing plans to create 700 new jobs and £165 million of extra investment.  PRESS ASSOCIATION Photo. Issue date: Tuesday March 5, 2013. The money will be spent at the firm's new engine factory near Wolverhampton, which opens later this year, with the first engines coming off the production line in 2015. See PA story INDUSTRY Jaguar. Photo credit should read: Dave Thompson/PA Wire



As Washington mulls a tax on imports, an auto industry study suggests the policy would deliver the sharpest blow to Tata Motors Ltd.’s Jaguar Land Rover while giving a leg up to Tesla Inc. and Ford Motor Co.
In what it calls a “thought exercise,” researcher Baum & Associates LLC estimates most automakers would need to raise vehicle prices by thousands of dollars — more than $17,000 per vehicle in Jaguar Land Rover’s case, which imports all its vehicles — to recoup higher costs incurred by a proposed border-adjusted tax. Ford, with significant domestic manufacturing, would need to mull the smallest price hike among major automakers, at about $282 per vehicle, followed by General Motors Co. at $995, according to the report.
The estimates aim to show the relative impact of the tax plan on each automaker, according to Alan Baum, the founder of West Bloomfield, Michigan-based Baum & Associates. Carmakers are unlikely to raise prices by more than a few thousand dollars per car and would also likely have to foot some of the higher tax burden.
“The plan results in a net cost for automakers,” Baum said by phone. “Each company will then make its own decisions on pricing in order to best compete and maximize its profits.” Volvo and VW vehicle prices would have to rise by about $7,600 and $6,800 on average, according to estimates by Baum & Associates, which advises suppliers. President Donald Trump is said to be warming to the border-adjusted tax after initially viewing it as too complicated.
The proposal to begin levying companies’ imports and domestic sales and make exports tax-exempt would completely overhaul the
US tax code.
General Electric Co. and Boeing Co. are among US manufacturers getting behind the idea, while Toyota Motor Corp. and Wal-Mart Stores Inc. are among the corporate giants warning it will result in costlier products ranging from food and clothing to gasoline and auto parts.
The Baum & Associates report accounts for imports of both finished vehicles and parts for domestic cars that are made overseas. The one automaker that may be able to keep prices steady would be Model S sedan maker Tesla.
The proposed border tax may induce automakers to boost US parts procurement and production from existing vehicle assembly plants, according to the report. Overseas automakers including Fuji Heavy Industries Ltd.’s Subaru, Mitsubishi Motors Corp., Mazda Motor Corp. and Hyundai Motor Co. and Kia Motors Corp. may also consider expanding existing US operations or building new capacity.
“Pure importers” such as Jaguar Land Rover, Volvo parent company Geely Automobile Holdings Ltd., Mazda and Mitsubishi are most “in the crosshairs” of a border-tax regime due to their total reliance on imports for their US sales, the
report said. If the tax is put in place and the companies want to remain competitive, Jaguar Land Rover and Volvo “will need to ramp up US parts sourcing and/or build plants here,” the report said. “The border tax approach will otherwise consume all of their profits from selling vehicles here.”

Leave a Reply

Send this to a friend