The US and European Union have agreed to a framework for a trade deal. It could have big implications for European automakers like Volkswagen (VWAGY) and Mercedes-Benz (MBG.DE). Yahoo Finance Senior Autos Reporter Pras Subramanian takes a closer look at the tariff impact on European automakers.

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Video Transcript

00:00 Josh Lipton

European automakers, like Porsche, Volvo, Volkswagen, they're going to see 15% tariffs on all imported cars and auto parts as a result of that recently announced deal. For more on this, we go to Yahoo Finance senior autos reporter, that would be Pras Subramanian, Pras.

00:19 Pras Subramanian

Yeah, Josh, I mean, you guys have been talking about it just now for the last 10 minutes. Yeah, that, that deal now in place. But for the automakers, you know, with that, they got a little pop when we heard reports that the deal was going to happen because there was a lot of anxiety about 25% tariffs on German luxury automobiles. Now it's coming down to 15%. So that's better news than, than what's been going on right now. But hey, that's not as good as the prior situation where it was around two and a half percent tariffs for German automobiles. So you saw the stocks of those companies today all taking a, a step lower, even though the deal is sort of a, a preliminary deal is in place. There's just a, a little bit of kind of, um, you know, yeah, it's going to impact margins a little bit. We kind of know what the hit's going to be, but it's just not fully great news here going forward for these businesses.

01:36 Josh Lipton

And Pras, these European automakers, Pras, what, what is the game plan with the tariff? They eat it, they take the margin hit, they pass it along to Pras and Josh, some combination of the two. What do we think?

02:00 Pras Subramanian

You know, there was thought that they would, like companies like Porsche would try to push the entire tariff costs onto their customers, but uh, as you can see, that probably just was not going to be a good idea because the fact that, you know, because consumers were not going to actually absorb that full cost. That's become a combination of we take some, the consumer takes some, and then we'll see what happens. So, you know, we've been hearing automakers have pushing around five to maybe less than 10% of that cost onto consumers, uh, when it was 25%, because they just couldn't put that fully on them. You know, companies like Audi just today announced, uh, sort of weaker than expected results in the US. Uh, and this is because not just because of tariffs, but because the product sort of landscape has changed, there's more competition out there. Uh, and so that combined with higher prices is just not a good situation for European automakers working in America, and they have to sort of stomach some of those costs in order to stay competitive.

03:31 Josh Lipton

You know, it's interesting, Pras, because we talk, you've talked about these European automakers on the show. So now they have, they do have some greater degree of clarity and certainty, but talk about the challenges these names still face broadly.

04:00 Pras Subramanian

I mean, we're in a world where interest rates are still, you know, 8 to 10% for a car. I mean, we talked about this earlier today about how that monthly payment has been going up and up and up and, and if you're talking about a car, luxury automobile where, you know, getting out the door, the cheapest lease is probably five, 600 bucks a month, you're talking about much more than that when you're financing. So you have that on top of the fact that you have tariffs, on top of the fact that we have maybe somewhat uncertain economy here with just sort of thoughts on what's going to happen in the future. Uh, you also have better American products. You have better products from Cadillac that are, that are, that are doing well in the marketplace, Lincoln itself too with the new Navigator, uh, vehicles like that. So you have a bit of a, of a minefield here for European automakers in the US. This is, this is their biggest market. They need to, to, to be here to perform well here. Uh, but it's, it's a combination of things that are making a bit more difficult for them. You know, unless you're the maker of Lamborghini, for instance, right? Those guys are always going to be okay because they only sell, you know, 6,000 vehicles in the US a year.  Related Videos

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