German carmakers caught in crossfire of trade row

FRANKFURT (Reuters): German carmakers BMW (BMWG.DE) and Daimler (DAIGn.DE) are under increasing pressure to diversify production of their sports utility vehicles (SUVs) outside of the United States as a result of Washington’s growing trade tensions with China.

Beijing’s proposed 25 percent tax on U.S. car factory exports will hit nearly 270,000 vehicles, with German carmakers accounting for $7 billion of the $11 billion total.

“This is a tax on Southern Germany, not the U.S.,” analysts at Evercore ISI said on Thursday. “A 25 percent additional auto tariff would represent a $1.73 billion negative tariff impact directed at Southern Germany by China.”

BMW, the largest vehicle exporter from the United States in terms of value, has its largest factory in Spartanburg, South Carolina and faces a $965 million impact from tariffs, with Daimler exposed to a $765 million hit, Evercore ISI said.

The company makes its X3, X4, X5, X6 and X7 sports utility vehicles in Spartanburg, and the trade dispute will only add pressure to move production of volume sellers like the X5 to markets outside the United States, a senior BMW source said.

But any switch from one factory to another costs millions of euros, takes months to implement, and is taken with a long-term view, BMW board member Peter Schwarzenbauer said last month.