MILAN -- Fiat Chrysler Automobiles would take big hit if President Donald Trump imposes tariffs on cars exported to the U.S. from global markets.
A 25 percent tariff on imports would reduce Fiat Chrysler's profits by up to 743 million euros ($866 million) annually, according to analysts Evercore ISI.
This figure is the worst-case scenario following Trump’s threat to impose tariffs on vehicle imports on national security grounds.
A 20 percent tariff on cars built in the European Union, which was also suggested by Trump, would see FCA profits decline by up to 526 million euros ($613 million), according to calculations by Evercore and Automotive News Europe.
Last year, FCA exported to the U.S. 158,553 cars and trucks from outside of the NAFTA area, up 3.7 percent from 2016, according to the Automotive News sales database. Sales rose 2.8 to 66,735 in the first five months compared with the same period in 2017.
Deliveries of Jeep Renegade small SUVs built in Melfi, Italy, account for nearly two-thirds of the total—103,434 in 2017.
All Alfa Romeo and Maserati nameplates sold in the U.S. are also made in Italy, as is the Fiat 500X crossover, which is built in the same plant as the Renegade.
If a high tariff is imposed on Renegades, “FCA will be examining a variety of options,” said George Galliers, an Evercore analyst. “These could include a push to upsell consumers into NAFTA-sourced vehicles, including the Compass and Cherokee models; keeping the European-sourced Renegade in the market but focusing on higher-specification versions; and looking to source Renegades for the U.S. market from Brazil, where it is also produced, or potentially localizing it in the U.S.”
In 2017, FCA exported 136,827 vehicles to the U.S. from the EU — all from Italy — up 4.2 percent from 2016.
According to figures from the U.S. Commerce Department, last year the U.S. imported $4.8 billion worth of passenger vehicles from Italy. That nation was the third-biggest EU exporter of cars to the U.S. after Germany ($20.2 billion) and the UK ($8.6 billion).
FCA also exports vehicles to the U.S. from non-EU markets. These are the 500L minivan built in Serbia, the Ram Promaster City small van produced in Turkey and the Fiat 124 Spider roadster from Japan, where it is built by Mazda alongside the Mazda Mx-5.
About 9 percent of FCA’s unit sales in the U.S. are vehicles imported into the U.S. from outside of the NAFTA area, according to Evercore ISI, a higher figure than 6 percent for General Motors and 4 percent for Ford. With an estimated average revenue per vehicle of 22,000 euros, FCA imports generate 3.3 billion euro revenues a year, Evercore ISI said, with a profit margin of 3.5 percent and 116 million euro earnings before interest and taxes (EBIT).
Assuming the same revenue per vehicle of 22,000 euros, revenues from FCA vehicles imported from the EU were 3 billion euros in 2017; according to Automotive News Europe calculations. If the U.S. government raises import tariffs on cars imported from the EU to 20 percent from the current 2.5 percent, this would reduce the automaker’s EBIT by 526 million euros.
These calculations assume sales prices remain unchanged. FCA, like all competitors, could decide to raise prices and have the customers shoulder part of the burden. This option likely would lead to a large decline in vehicle sales.
FCA’s smaller vehicles are most exposed to the tariffs. Jeep Renegade prices in the U.S. start at $18,445 before sales tax, according to the company’s U.S. website. The additional tariff would have an impact of more than $3,000, pushing the crossover’s price above that of the Mexico-produced Jeep Compass, which starts at $21,095 in the U.S.
Italy jobs fears
Imposing a 25 percent import tariff on auto imports would pretty much destroy the business of importing cars from Europe/China to the U.S., Evercore ISI said in a note to investors.
FCA’s Melfi plant, 150 km east of Naples, would be badly hit. Last year the plant built 177,352 Renegades, according to the Federation of Italian Metalworkers (FCA does not release production numbers). U.S. exports accounted for 58 percent of Renegade production.
“We are worried by the possible impact on the Melfi plant, which is already facing the end of the Punto production this year,” said Michele De Palma, head of Italy's biggest metal workers union FIOM.
The United States already imposes a 25 percent on some vehicles imported into the country, the so-called "Chicken Tax." This applies to commercial vehicles and pick-ups, so vehicles such as the Renegade, as well as Alfa Romeo and Maserati vehicles sold in the U.S. are not impacted, said Evercore ISI’s Galliers.