I’ve gotten a few emails this week in regards to what these tariffs mean for the auto industry, and BMW specifically. Will Trump tariffs make BMWs cost more? Yep.
But it’s a lot more complicated than you think. No politics here either (that’s none of my business). Let’s do a Q and A. Deep breath.
What is the USMCA agreement?
It’s a trade agreement between the US, Mexico and Canada. Catchy name, right? You’re probably going to hear a lot about it, and I’m sure it’ll all be very fascinating. But I’m mostly concerned with this bit:
What’s the USMCA rules of origin?
Where is a thing really from? In the case of a car, the answer is very complex – probably all over the globe. We can determine it by looking at the RCV, or Regional Content Value. For cars, the value must be 75%.
If you’ve ever really looked at a Monroney label, you’ll see a “Parts Content” panel, like this one from a BMW X5 M:
This X5 is assembled in South Carolina, which is very different from being “built” here. With 19% of the parts content coming from Germany and 28% coming from Canada, we find that yes indeed, less than 75% of this car is made in the US.
What parts of a BMW are made in Germany?
That Monroney lists the engine and transmission. Could those bits be worth the 19%? Maybe, it’s unclear how they determine that. Would it be better if they made the engines here and instead imported a sun visor or something? Sure – but think about how hard auto makers have had it over the past ten years.
Invest in electric, but they don’t sell, so here’s some government incentives, but they might stop. How can BMW plan ahead by saying “Yes, let’s make an engine factory in America.”, if just six months ago, engines were going to be banned in a decade?
Is my BMW safe if it’s “built” in America?
No, for two reasons. First, that RCV content is too low – all BMWs are still considered foreign-made in the eyes of the government. Fun fact: BMW exports more cars from the US than any other auto maker, including the big three of GM, Ford and Stellantis.
But even if a car like the X3 were safe, an M2 wouldn’t be because it’s made in Mexico. BMW won’t just dump the tariffs on the models they import, it would have to be distributed throughout the lineup. Otherwise an M2 could cost as much as an M3, if the M3 were made here.
What about all the other parts of a car?
If BMW uses microchips from China to put into a car they build here, then it’s safe to assume those microchips are going to have tariffs placed on them.
Even metal – for steel to be considered “domestic”, 70% of the steel’s weight must come from North America.
Does it really matter where a BMW is made?
It shouldn’t. When BMW opens a plant, they send workers from Germany to install a plan and train the local workforce. They all use the same parts. But if you’d like to know more about the industry, look up a man named W. Edwards Deming. He was brought over to Japan after World War Two and helped teach the importance of build quality to the Japanese. From MIT:
Ford was simultaneously manufacturing a car model with transmissions made in Japan (by Mazda) and the United States (by Ford). Soon after the car went on the market, Ford customers were requesting the model with Japanese transmissions over the US-made ones, and they were willing to wait for the Japanese model. As both transmissions were made to the same specifications, Ford engineers could not understand the customer preference for the model with Japanese transmissions.
Finally, Ford engineers decided to take apart the two different transmissions. The American-made car parts were all within specified tolerance levels. However, the Japanese parts were virtually identical to each other, and much closer to the nominal values for the parts—e.g., if a part was supposed to be one foot long, plus or minus 1/8 of an inch (300 mm ± 3 mm)—then the Japanese parts were all within 1⁄16 of an inch (1.6 mm), less variation. This made the Japanese cars run more smoothly and customers experienced fewer problems.
You can bet the Germans are as precise.
So should I buy a BMW now?
It’s already too late, sort of. Trump’s tariffs are on-again, off-again, but that will end soon. You order one now, you’ll pay.
I have a friend with a Porsche waiting for a boat ride in Germany – a 25% price increase suddenly descending upon him as his new car rides on a boat across the ocean is akin to lighting the money on fire. A $100,000 car isn’t suddenly worth $125,000 because we’ve had to pay a higher tax on it. We, as car enthusiasts, will never see that money back.
But I will also say that companies like Porsche and BMW have been greedy. The cost of an M3 has risen nearly $8,000 in just three years.
It’s the same car.
So will Trump tariffs make BMWs cost more? What’s the end game for BMW?
I’m not sure. Let’s say they decide yes, the US is our largest market, and we will build another factory and do it all in-house. That would take years to come to fruition.
By the time that’s done, Trump could be gone, and yet another person with an agenda will come in and change the rules again.
Want my genuine advice? If you can buy the car you want now, do it. This has always been an expensive hobby, but with the uncertain future of ICE and now these added tariffs – even congestion pricing in New York City, it’s just a matter of time before the freedom of owning a car is severely diminished.
