Tariffs key in Audi’s choice of Mexico

Audi’s decision to place the plant that will build the new Q5 crossover in Mexico resulted from more than cheaper labor and government incentives. According to CEO Rupert Stadler, Europe’s growing interest in SUVs and and crossovers played a key role. The European Union slaps a 10 percent tariff on U.S.-built vehicles, which would have cost Audi more than $3,000 per vehicle.1  Only 25% of the cars produced will be targeted for the U.S. A majority will instead be headed for the European Union.

This is part of a growing trend in which cars are produced in a foreign country and then exported to the market country, in part due to cheaper labor costs and flexibility in trade laws. This also presents a problem for Europe, which continues to see problems with decreases in production done within the continent as more and more jobs are being lost to Asia and Latin America. Rather than importing cars produced in other countries, Europe will need to increase the imports of its own cars to help the industry. While the trend in demand for production is certainly shifting from Europe towards other continents, changes in tariffs and trade laws by the EU may be needed to slow decline during the recession.

1. http://europe.autonews.com/apps/pbcs.dll/article?AID=/20130517/ANE/305179999/tariff-played-a-role-in-mexico-winning-audi-plant#axzz2TdDqsc2d

5 comments to Tariffs key in Audi’s choice of Mexico

  • So far moves such as this by BMW and VW and Audi don’t represent production being lost in Europe, rather expansion not occurring there but elsewhere. Audi is dependent on a Euro cost base, and so is vulnerable to disruption and bears exchange rate risk (which can include a weaker Euro that would make Audi’s exports from there more profitable, not just a stronger Euro that would make them [potentially] unprofitable). With sales only partly in Europe, it makes sense to spread production closer to consumption. Audi already has production in China (though I don’t know how extensive it is, and the extent to which it relies on local parts rather than imported kits).

  • cookg15

    The differences in exchange rates between countries and tariffs seem to be one of the key factors in the automotive landscape today. I saw another article where Hyundai and Kia are losing ground in South Korea because other companies are able to export their cars to Korea cheaper.

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