By Victoria Waldersee
BERLIN (Reuters) -Volkswagen is working on back-up plans for how its passenger car brand could tackle U.S. tariffs on imports from Mexico, while BMW (ETR:BMWG) is preparing to absorb the cost, as the auto industry reels from U.S. President Donald Trump’s chaotic trade policy.
Last week, the White House granted some of the industry a one-month reprieve, saying that North American-built vehicles would be exempt from 25% tariffs if they already followed the complex 2020 U.S.-Mexico-Canada Agreement’s rules of origin, enacted during Trump’s first term.
The American auto industry, which for decades has enjoyed free trade across the United States, Canada and Mexico, is working out how to adjust supply chains if the trade war continues, a potentially expensive prospect.
Around 90% of auto exports from both Mexico and Canada go to the U.S., according to the Mexican Automotive Manufacturers’ Association (AMIA) and the Canadian Vehicle Manufacturers’ Association.
Increasing production at the VW brand’s U.S. plant in Chattanooga would need "a bit more time", brand CEO Thomas Schaefer said on Thursday.
VW ruled out a last-minute dash to move Skoda and SEAT/CUPRA cars over the Mexican border. It has a major plant in Puebla, which produces around two-thirds of the cars it sells in the United States.
"For now, we are watching the situation and doing back-up plans for long-term solutions," Schaefer said, describing a short-term shift of models from Mexico to its U.S. plant as "not realistic".
German automaker BMW is telling U.S. dealers that it will not pass on the added cost of new tariffs on its imports from Mexico, at least for the next several weeks.
That is in contrast to some other companies including consumer and industrial goods makers which have said they are likely to hike prices to offset the cost of tariffs.
On Wednesday, Porsche said it was assessing how it could pass on the cost of possible tariffs - expected to be 25% for U.S. imports from Europe - without pressuring its margins. That implies prices could be hiked to offset any drop in unit sales.
Even without higher tariffs, lower sales, high costs and trade concerns would hurt 2025 earnings, the luxury carmaker warned.
Chrysler parent Stellantis (NYSE:STLA) said in January it was moving forward with plans to build a new midsize pickup truck in Belvidere, Illinois.