The car industry’s warning lights are flashing red. Trade conflict has hit a sector already struggling with technological change and emission reduction. German manufacturers are the worst hit. The Euro Stoxx automobiles and parts index has fallen more than a quarter this year. Unless trade tensions ease, the gloom is justified.
In June Daimler became the first big company to issue a profit warning sparked by China’s retaliatory tariffs against the US. The Mercedes-Benz parent has large plants in the US that ship cars to China. Trade worries helped drive down Daimler’s share price to just six times next year’s earnings, half the multiple they commanded in 2015.
The automotive industry is the epitome of globalisation. Cars are the world’s most traded product. So how can carmakers such as Daimler adapt to protectionism? Many already make cars near their markets. But setting up new production sites is costly and time-consuming. One alternative for Daimler is to make use of an approach jauntily described as “completely knocked down” production. Shipping assembly kits, rather than completed cars, can change the country of origin.