How will the repercussions of recent US tax plans be felt by the automotive industry? Our new study shows border tax proposals introduced by the new US administration will contribute significant costs to vehicles sold in the US. These costs will not only apply to imported vehicles, but also vehicles produced in the US, due to foreign part content. The industry is forecast to be hit by costs of up to USD 60 bn, or USD 3300 per vehicle in the case of the border adjusted tax proposal.

A closer look at the Original Equipment Manufacturer (OEM) level shows the Detroit 3 on average would be hit by a USD 1500 cost increase, followed by the Asian manufacturers with around USD 2000. The European OEMs would be hit by USD 5300 on average or even USD 6400 for the pure play importers.

Moving production from abroad to the US does not solve the cost problem. Producing a mid-size sedan in the US is already an exercise in loss making. Moving production from Mexico adds USD 1200 costs per vehicle, without even counting the billions of dollars required in investment costs to rebuild the capacity domestically.

As a consequence, the border tax proposals may achieve the exact opposite as intended – US companies and US consumers will have to bear the extra costs, leading to weaker vehicle sales, lower margins and eventually even fewer jobs.