Why don’t Europeans buy more American cars?

Donald Trump is threatening to introduce major tariffs on imports of EU cars, where Europeans are unhappy about not buying more American cars. But why are US cars, with the notable exception of Tesla, not so popular in Europe?

The ancient Italian towns and cities are narrow, cobblestone streets, and in the words of US President Donald Trump, provide an obvious explanation, “we don’t take our cars.”

Or, as Automotive Analyst Hampas Engelau said, “Try touring Italy with a big SUV. I did it, and it’s very difficult.”

Adding costs to the question reveals why American pickup trucks aren’t seen so many European roads, Mike Haws, CEO of the UK’s leading automakers and traders Association, observes I’m doing it.

“We tend to have higher fuel prices than Americans, so while we generally prefer larger vehicles, we prefer smaller, more fuel-efficient vehicles.”

Engellau, who works at Swedish investment bank Handelsbanken Capital Markets, emphasizes that gasoline prices are considerably lower in the US. “They pay what we pay per liter per gallon,” he says. Each gallon has 3.8 liters.

However, these differences have hardly prevented European automakers from gaining market share in the US. Again, in Trump’s words, the United States has “a BMW, Mercedes, Volkswagen and many other cars.”

In 2022, 692,334 new EU-made cars were exported to the US, amounting to 36 billion euros ($37 billion, £30 billion). However, for 5.2 billion euros, only 116,207 new US-made cars went in the opposite direction.

According to Trump, this imbalance requires unfair trading rules and amendments.

“Trump is concerned that the terms of trade are not actually equal,” Engelau explained, and the EU’s 10% tariff on cars imported from the US is well above the US 2.5% tariff. It points out that the bill is far higher than the imported vehicle bill from (currently). EU.

These disparities have prompted Trump to say he wants to raise US tariffs on European automobile imports. He has already announced 25% import duties on the import of steel and aluminum, two metals that are essential to automakers.

Trump’s move appears to have urged EU officials to consider reducing their own tariffs to protect the European automotive industry from potential trade wars.

Trump’s intervention has not impressed Jim Farley, the boss of our carmaker Ford. “What we’ve seen so far is a lot of costs and a lot of confusion,” NBC News reported recently.

In fact, automotive veteran Andy Palmer, formerly Nissan’s chief operating officer, CEO of Aston Martin and now a consultant, has a very focus on trade. It’s misplaced. “If you can help with that, you don’t want to ship cars all over the world. They’re a big box of expensive air,” he says.

With the automotive industry global and adding Mr Hawes from SMMT, automakers generally want to “manufacture near the customer’s base.”

Thus, several European automakers, especially Marquise such as BMW, Mercedes and Audi, produce some of the largest cars in North America, and some of these vehicles are exported to Europe. .

American automakers have historically pursued similar strategies in Europe. General Motors owned and manufactured European marquees such as Opel/Vauxhall and Saab, but sold the former in 2017 and closed the latter in 2009.

Meanwhile, Ford offloaded Aston Martin in 2007, Jaguar and Land Rover in 2008, and Volvo in 2010.

After years of losing money, Ford is now redirecting its European business towards electric and commercial vehicles, away from small, affordable cars such as focus models.

Ford plans to cut 800 jobs in the UK and 2,900 jobs in Germany by 2027, a 14% reduction in the strong European workforce of 28,000.

Elon Musk’s Tesla has a factory near Berlin, Germany, and manufactures model cars for the European market, but again, low-cost Chinese imports have grown in the European market, particularly electric vehicles. Because of this, there is a headwind.

According to Jose Asmendi, head of European Automotive Research at investment bank JP Morgan, Europe is a very tough market for automakers. “We need to have the right products and we need to run our manufacturing plants well.”

He also points to brands with competitive advantages in their home countries, including BMW in Germany, Mercedes, Volkswagen, Audi, Peugeot in France, Citroen, Renault in Italy, and Fiat and Alfa Romeo in Italy.

“There’s a natural tendency for people to buy local champions, especially in Germany, France and Italy,” explains Asmendi.

He adds that while other European countries are more open to a variety of brands, the market is busy, with more and more Japanese, Korean and more Chinese cars gathering.

In addition to the European complexity of overseas automakers, there are different tax regulations and the need to communicate in many different languages.

Palmer doesn’t believe that “European customers are making special challenges to American cars.” Asmendy agrees. “I think Europeans like American brands, but there are many other brands available in Europe, so there’s a lot of competition,” he says.

Trump’s ambition is to make the US automotive industry stronger by bringing more production and innovation into the home. However, Palmer argues that the car trade war with Europe will not deliver this.

In particular, he says, tariffs “incline the beneficiaries from the free market, which simply becomes lazy, so they cannot stop innovation and remain competitive.”

“It’s not trade,” adds Palmer. “It’s about investment and collaboration.”