BMW To Raise Prices Of Two U.S.- Made SUV Models In China

German carmaker BMW (BMWG.DE) said it will raise the prices of two U.S.-made crossover sport-utility vehicles in China to cope with the additional cost of tariffs on U.S. car imports into the world’s biggest auto market. In a move due to take effect on Monday, BMW said in a statement to Reuters over the weekend that it will increase maker-suggested retail prices of the popular, relatively high-margin X5 and X6 SUV models by 4 percent to 7 percent. The rates of increase suggest that BMW is willing to absorb much of the higher costs stemming from bringing the SUVs to China from its factory in South Carolina, underscoring the fierce competition among luxury car brands in China. BMW’s move comes after China imposed new tariffs earlier this month on about $34 billion of U.S. imports, from soybeans and cars to lobsters, as part of a widening trade row.

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With tariffs, manufacturing in the USA is less competitive than in foreign countries. Soon, manufacturers and their jobs will have to move out of the US to stay competitive...it will be harder and harder...

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All, foreign car makers are going to raise prices, its only business. Can the American worker afford it? 

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That’s an inevitable consequence and "picture" of trade war...

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4% to 7% ? Let's see - BMW is a net exporter from the US - their Spartanburg SC plant produces more BMWs than any other facility in the world. These price increases which result from Chinese tariffs on US produced goods will likely decrease sales and may cost US jobs

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All these tariffs will only hurt those of us who buy the products.  
 

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BMW has plenty of fat in their China list prices, and wealthy Chinese are not going to stop buying BMW for a 4 to 7% price increase; those cars are largely insensitive to price.  Right now the number of car sales lost due to the new Chinese tariff is likely zero.  

I invite readers to consider the pricing of the top-end BMW 7-series.  They cost out at $93,000 with the nice trim. The US  buyer leases it and pays perhaps $800 a month.  If the sticker goes to say $97,000 and the lease payment rises to $840, is that BMW customer going to walk out the showroom door?  Nope.  At those increments, that buyer is price insensitive. (He may be shopping between dealers, but he is not looking at a Cadillac as a competing good.) 

You get the same behavior in airline tickets.  Although the carriers fiercely compete on price, matching each other for the last ten bucks, what businessman is going to jump from Delta to USAir because his ticket is being bumped by twenty bucks?  Ain't gonna happen. Another reason why consolidation has led to higher prices, and carrier profits. 

Will the Trump Tariffs end up being boom or bust?  At this point, that jury is still out.  You are seeing these squeals and squawks of protest from the Chinese, the Canadians, and the Europeans, but hey, nobody is severing diplomatic ties.  Personally, as to basic metals, I think Trump will make it stick - and you will see domestic expansion in heavy industry.  As to the consumer and agricultural goods side, that all remains very much in flux,  I would be surprised if a total volume reduction in world trade will not occur, but whose ox is gored (or gored the most) is an unclear picture.  I anticipate that China will not be able to siphon off US wealth as much as in the past, and US residents will be the net beneficiaries.  China needs access to the US market more than Americans need to sell to China. My guess is that China will have to continue to devalue its currency to keep pace, thus lowering personal incomes in China.  You will also see some Chinese basic industry, and heavy industries such as shipbuilding, being shut in  (already happening in Chinese shipyards, some of which are closing as this is being written).  We shall see how it shakes out. 

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17 minutes ago, Jan van Eck said:

BMW has plenty of fat in their China list prices, and wealthy Chinese are not going to stop buying BMW for a 4 to 7% price increase; those cars are largely insensitive to price.  Right now the number of car sales lost due to the new Chinese tariff is likely zero.  

I invite readers to consider the pricing of the top-end BMW 7-series.  They cost out at $93,000 with the nice trim. The US  buyer leases it and pays perhaps $800 a month.  If the sticker goes to say $97,000 and the lease payment rises to $840, is that BMW customer going to walk out the showroom door?  Nope.  At those increments, that buyer is price insensitive. (He may be shopping between dealers, but he is not looking at a Cadillac as a competing good.) 

You get the same behavior in airline tickets.  Although the carriers fiercely compete on price, matching each other for the last ten bucks, what businessman is going to jump from Delta to USAir because his ticket is being bumped by twenty bucks?  Ain't gonna happen. Another reason why consolidation has led to higher prices, and carrier profits. 

Will the Trump Tariffs end up being boom or bust?  At this point, that jury is still out.  You are seeing these squeals and squawks of protest from the Chinese, the Canadians, and the Europeans, but hey, nobody is severing diplomatic ties.  Personally, as to basic metals, I think Trump will make it stick - and you will see domestic expansion in heavy industry.  As to the consumer and agricultural goods side, that all remains very much in flux,  I would be surprised if a total volume reduction in world trade will not occur, but whose ox is gored (or gored the most) is an unclear picture.  I anticipate that China will not be able to siphon off US wealth as much as in the past, and US residents will be the net beneficiaries.  China needs access to the US market more than Americans need to sell to China. My guess is that China will have to continue to devalue its currency to keep pace, thus lowering personal incomes in China.  You will also see some Chinese basic industry, and heavy industries such as shipbuilding, being shut in  (already happening in Chinese shipyards, some of which are closing as this is being written).  We shall see how it shakes out. 

I would add that the BMW autos that are made in the U.S. are made in factories that BMW set up in the U.S. for the U.S. market.  The Chinese market is just icing on the cake, so to speak.  So, in addition to Jan's point about the Chinese customers being insensitive to the smallish price increase, the price to the U.S. market is largely not being affected at all.  Or have I missed something here?

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21 minutes ago, Dan Warnick said:

I would add that the BMW autos that are made in the U.S. are made in factories that BMW set up in the U.S. for the U.S. market.  The Chinese market is just icing on the cake, so to speak.  So, in addition to Jan's point about the Chinese customers being insensitive to the smallish price increase, the price to the U.S. market is largely not being affected at all.  Or have I missed something here?

You haven't missed anything.  Quite right, the US plant was set up specifically to sell to the Americans.  However, one caveat:  there is some rumbling that "auto parts" will face a 25% duty at import into the USA.  If that happens, then BMW sales in the USA will be testing customer brand loyalty, as lots of the parts used in the assembly plant are sourced from Europe, or shipped from BMW itself in Europe.  The US plant is basically an assembly operation, not a manufacturing operation.  

The shipping of what are "knock down kits" into the USA from manufacturing plants abroad is common enough.  For example, Kawasaki Railcar  has this large plant in Yonkers, NY, which is sitting just off the far northern tip of Manhattan.  The plant is for assembly of subway cars for the New York subway system.  Nothing in that plant is manufactured locally; it is all supplied in kit from from Japan, and assembled with US labor, in order to meet the requirements of "Buy America" legislation as relates to federally-funded transit purchases.  As the NY MTA uses Federal Funds, in order to be a supplier, you have to assemble in the USA.  So these railcar vendors, such as Bombardier, Alstom, Kawasaki, the new CRRC plant opening in Springfield, Massachusetts (to build cars for the Boston subway),  set up these plants and ship in the kits.  Those types of parts are not amenable to being sourced in the USA quickly, if at all, and thus if a parts tariff hits, the industries are going to face substantial cost dislocations. 

The economic impact of kit plants is substantial.  I invite readers to ponder the situation of Springfield, Massachusetts, basically a decrepit, bankrupt city, that in times past was a huge armory for the machining of guns for the US Army.  It has been a sea of crime and collapse.  Along comes CRRC and puts up this massive plant, and will be hiring hundreds if not thousands, to assemble the kits.  Check it out:

https://www.youtube.com/watch?v=VQi-fxomvk0

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2 hours ago, jpZelabal said:

All these tariffs will only hurt those of us who buy the products.  
 

And that is what the Koch's predicted.

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JV

BMW located in SC Dutch Triangle is obligated to export 70 % of the production.  The remaining 30 % can hit the US market.  It is a binding tax agreement, in other words if BMW exports only 7 vehicles, it can only sell 3 in the US.

Thanks

 

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