June 4, 2019 / 5:17 PM / 14 days ago

Automakers say Trump's threatened Mexico tariffs would cost billions

DETROIT (Reuters) - Toyota Motor Corp said on Tuesday that U.S. President Donald Trump’s proposal to slap tariffs on Mexican-made goods could cost its major suppliers $1 billion, highlighting growing concern in the U.S. auto sector about the potential damage of a new front in the Trump administration’s trade wars.

FILE PHOTO: A carrier trailer transports Toyota cars for delivery while queuing at the border customs control to cross into the U.S., at the Otay border crossing in Tijuana, Mexico May 31, 2019. REUTERS/Jorge Duenes

Trump has said he will apply tariffs of 5% on Mexican goods on June 10 if Mexico does not halt the flow of illegal immigration, largely from Central America, across the U.S.-Mexican border. Those tariffs would gradually rise to 25% by Oct. 1 if Mexico does not satisfy Trump’s demands.

Faced with this threat, major automakers are also planning to delay some vehicle shipments from Mexico, people briefed on the plans told Reuters on Tuesday.

The shipment delays would affect vehicles with high inventory levels on U.S. dealer lots if the tariffs take effect as threatened. Automakers are trying to speed some critical parts shipments this week ahead of the Monday deadline.

Consultancy LMC Automotive said on Tuesday the industry could absorb a 5% percent tariff for a month, but that a sustained period at the 25% tariff level would have a potentially devastating impact on the auto industry and cut U.S. new vehicle sales by up to 1.5 million units annually.

“A prolonged period of tariffs on Mexican imports would likely push Mexico into recession and could also threaten a recession in the United States,” LMC said.

In 2018, automakers sold 17.3 million new vehicles in the United States.

LMC said prices on models imported from Mexico could increase by an average of $8,500, while the average price of a vehicle sold in the U.S. market could rise by as much as $2,500-3,000 when parts for assembly in the United States are factored in.

In an email seen by Reuters, Toyota Motor Corp told its U.S. dealers the duties could cost its major suppliers between $215 million and $1.07 billion.

The email, dated June 3, from Toyota’s North American sales chief, Bob Carter, also told dealers that 65% of the Tacoma midsize pickup trucks the Japanese automaker plans to sell in the U.S. market in 2019 will be imported from its plant in Baja, Mexico.

On Tuesday Kevin Clark, chief executive at auto supplier Aptiv PLC told investors at a conference in Boston that a 5% tariff would cost it around $17 million per month.

Speaking to reporters on the sidelines of a conference in Montreal on Tuesday, Steve Kiefer, senior vice president, global purchasing and supply chain at General Motors Co, declined to discuss how much tariffs could cost but said “the single biggest problem we have is the uncertainty with tariffs.”

“Right now, we’re asking all of our suppliers to be calm and not do anything drastic,” Kiefer said.

Automakers are pressing Republican senators on Capitol Hill to contact the White House to try to convince the president not to move ahead with the tariffs, the people briefed on the matter told Reuters.

U.S. Senate Majority Leader Mitch McConnell said on Tuesday there was “not much support” among his fellow Republicans for the tariffs.

Reporting by Nick Carey; additional reporting by David ShepardsAllison Lampert in Montreal and Sanjana Shivdas in Bangalore; editing by Steve Orlofsky

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