Abu Dhabi, UAEWednesday 26 June 2019

Asian carmaker shares hit as Trump threatens Mexico with tariffs

Major Japanese carmakers produce one third of their vehicles in Mexico

Japanese car maker Nissan makes most of its vehicles in Mexico. Reem Mohammed / The National
Japanese car maker Nissan makes most of its vehicles in Mexico. Reem Mohammed / The National

Shares of Asia's major carmakers and their suppliers sank on Friday after US President Donald Trump threatened to slap tariffs on Mexican imports next month, potentially affecting vehicles made in Mexico and sold north of the border.

Mr Trump, incensed by a surge of illegal immigrants across the southern border, said late on Thursday a tariff of 5 per cent would be imposed on all goods coming from Mexico, increasing gradually each month until reaching 25 per cent on October 1, unless Mexico takes immediate action.

The move is likely to hit a broad range of industries, but the car industry looks particularly vulnerable as many global manufacturers make vehicles in Mexico to take advantage of its cheap labour, trade deals and its proximity to the US - the world's second-largest market.

"Margins are so thin in the US market right now that there's no way that any automaker is not going to pass on these tariffs to their customers," said Janet Lewis, an analyst at Macquarie Securities.

"The unknown factor is the impact on suppliers, as components can move back and forth between Mexico, the US and Canada up to 20 times before they make their way into assembled cars."

General Motors is the biggest car producer and exporter in Mexico, and its global peers Ford Motor, Volkswagen and Fiat Chrysler also manufacture there.

In Japan, shares in Toyota Motor fell 2 per cent while Nissan and Honda fell about 3 per cent. Mazda took a bigger hit, tumbling nearly 7 per cent. All four automakers operate vehicle assembly plants in Mexico, producing roughly one-third of the vehicles made in the country.

In South Korea, Hyundai and affiliate Kia Motors fell 1.1 per cent and 4.2 per cent respectively.

"Although we have to wait and see whether the US tariffs plan will be really implemented, this is negatively affecting investor sentiment," said Chang Moon-su, an analyst at Hyundai Motor Securities in Seoul.

Japan's top automakers and their suppliers, including Denso Corp and Aisin Seiko, for decades have been building vehicles in Mexico not only for the domestic market, but also to export to the US, taking advantage of previous free-trade agreements between the two countries.

Among them, Nissan produces the most vehicles in Mexico, and its exports to the US account for roughly one-quarter of the firm's total vehicle sales in the country, industry experts say. Its Sentra and Versa models are made in Mexico for the US market.

Smaller rival Mazda exports about 30 per cent of its Mexico-produced cars to the US, while the figure for Toyota and Honda is less than 10 per cent each.

Japanese automakers together produced about 1.25 million vehicles in Mexico in 2018.

Updated: May 31, 2019 12:08 PM

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