Thursday, Dec. 15, 2011, 01:58 AM UPDATED 1:58 AMBy Auto Remarketing Editor Joe Overby
IRVINE, Calif. -
The latest development in a trade squabble between the U.S. and China may end up having a particularly strong negative impact for General Motors, according to a Kelley Blue Book analyst, who said Wednesday that the automaker’s income could fall as far as 2 percent due to an import duty announced by the Chinese government.
Importing certain models from the U.S. into the world’s largest country will come with fees that begin today, thanks to duties unveiled Wednesday by China’s Commerce Ministry, reports indicate.
The fees — which last two years and are being put on vehicles that have engines 2.5 liters or larger — start at 2 percent and approach 22 percent. The heftiest of the fees are being placed on GM vehicles.
KBB’s Alec Gutierrez estimates this could cost GM 10 percent of its net income from its Chinese joint ventures, which would translate to an overall drop as big as 2 percent in global net income.
“Two percent may not seem significant, but it would represent a total reduction in net income of approximately $40 million per quarter or $160 million per year,” said Gutierrez.
“Investors are already reacting to (Wednesday) morning’s news, driving GM shares down 2 percent in early trading,” he continued. “The drop may be short term though since there are a number of factors that will ultimately influence GM’s bottom line, specifically, the percentage of vehicles GM currently offers in China with an engine capacity above 2.5 liters that are imported from the U.S.
“In the worst case scenario, GM may consider moving additional production to China to counteract the effects of the import tariff in the long run, potentially eliminating jobs here in the U.S,” Gutierrez added. “China will remain an important growth market for GM, and they will likely do whatever is necessary to ensure that they can remain competitive in that market. “
The Chinese market certainly has been vital for GM, as of late. In fact, Gutierrez pointed out that 42.6 percent of year-to-date total sales volume for GM has come from emerging markets like China. What’s more, in the most recently completed quarter, 18.5 percent of the automaker’s net income was from its Chinese joint ventures, he added.
“GM, together with its Chinese partners, has long been recognized in China as a leader in supporting the development of China's automotive industry,” the automaker said in a statement. “To better serve our customers by providing vehicles tailored for Chinese buyers and to make them more affordable, GM generally builds where we sell. In fact, GM's import volume is less than half of 1 percent of its domestic production in China.”
The statement continued: “GM and its partners are working with relevant authorities to understand the impact of the Chinese government's decision to lift the suspension of anti-dumping and countervailing duties and to seek a solution consistent with a constructive global trade environment, which we believe is important to both China and the U.S.”
Of course, GM is not the only automaker impacted.
The fees are also being placed upon Chrysler and the U.S. businesses of BMW, Mercedes-Benz and Honda, along with unnamed brands, one report noted. The speculation is that the fees were in retaliation in what has been an ongoing back-and-forth trade and tariff battle between the U.S. and China.