Ford seen benefiting from Trump-proposed U.S. border tax but Toyota would take hit


A proposed tax on imports that President Donald Trump is said to be warming to could upend the competitive landscape for carmakers, boosting Ford Motor Co. while hindering manufacturers that rely more on overseas factories, including Toyota Motor Corp.

House Republican leaders have proposed a so-called border-adjusted tax, which would place a levy on vehicles imported into the U.S. and fully exempt those exported. Though Trump initially deemed the idea too complicated, White House Press Secretary Sean Spicer last week said it was under consideration and could help pay for a wall along the Mexico border.

The overhaul to the U.S. tax system could hand an advantage to Ford, Honda Motor Co. and General Motors Co., which rely the least on imported vehicles among major automakers. The shake-up would also undermine Toyota, which relies on shipments of RAV4 sport utility vehicles from Canada and Lexus luxury models from Japan, and deliver an even more damaging blow to companies with zero domestic production, including Mazda Motor Corp.

“The border adjustment piece of this is very intriguing for us,” Ford Chief Executive Officer Mark Fields said in a call with analysts after posting a $10.4 billion pretax profit for 2016. “The reason for that is we are the largest producer of vehicles here in the U.S. We’re a top exporter.”

About 79 percent of Ford’s domestic vehicle sales were built at home last year, according to researcher LMC Automotive, second only to the much smaller electric-car maker Tesla Inc. Tesla has amended its bylaws and legally changed the company name from Tesla Motors Inc. to Tesla, according to a securities filing Wednesday.

Honda ranks just behind Tesla and Ford, with 68 percent of its U.S. sales coming from domestic plants, followed by GM with 65 percent, LMC said in a January report.

Gauging the full impact of a border-adjusted tax will require more details about the proposed changes. The measure is linked to complex reforms including the immediate expensing of capital expenditures and the elimination of interest deductibility.

Another potential offset could be a stronger dollar. Some economists predict this will be a consequence of the border tax, which would ease the impact on importers. The degree to which carmakers rely on imported parts for U.S.-assembled vehicles also will play a factor, as would a renegotiation of the North American Free Trade Agreement.

“While we’re not clear if the new administration plans to use moral suasion, border adjustment taxes, or tariffs to bring jobs back to the U.S., if it were through tax or tariffs we believe that Ford is better positioned,” Brian Johnson, an analyst with Barclays Plc, wrote in a Jan. 23 research note.

The largest vehicle importers include Mazda and Volkswagen AG, which could face higher tax liability. Although Toyota has four vehicle assembly plants in the U.S., the largest Japanese carmaker warns costs will rise and lead to higher vehicle prices for consumers.

Unlike traditional U.S. automakers GM and Fiat Chrysler Automobiles NV, Ford doesn’t import lucrative pickups from Mexico — plants in Michigan and Missouri assemble the F-Series truck line. Even basic versions of the F-150 can cost $30,000, and export destinations include Canada, where the model captures 42 percent of segment sales, compared with GM’s 28 percent, Johnson says.

“Relative to our peer set we’re in very good shape, and versus some of them extremely good shape,” Ford Chief Financial Officer Bob Shanks said on a Jan. 26 conference call. The automaker and its peers are scheduled to report U.S. sales Wednesday.

Ford has a “pretty positive point of view” on the border-adjusted tax proposal when other components of the plan, such as a lower overall corporate tax rate, are taken into consideration, Shanks said.

Companies relying more on imports strike a different tone. Volkswagen sourced only 12 percent of its U.S. sales from one domestic plant last year, according to LMC. Mazda imported every vehicle it delivered to American customers.

“Mazda is in favor of free trade,” said Dan Ryan, the Washington-based director of government affairs for the company. A border tax “would be harmful for our business and our over 600 dealers and their employees. We would expect there to be significant increases in the price of vehicles and parts, and consumers would ultimately pay the price.”

The Toyota Camry midsize sedan ranks highest on‘s American-Made Index, which takes into account where vehicles and their parts are made. Even this model would see about a $1,000 price increase as a result of the import tax, according to Jim Lentz, CEO of Toyota Motor North America. For vehicles with less U.S.-sourced content, the premium could run as high as $4,000, he said in an interview.

“I don’t think anyone would disagree that we need to reform taxes overall in the U.S., especially corporate tax, to be more competitive on a global basis,” Lentz said Sunday during the National Automobile Dealers Association convention in New Orleans. The border tax “is just tough for this industry” and would cost jobs.

The American International Automobile Dealers Association, which represents non-U.S. brand retailers, is urging members to call their representatives and share the trade group’s concern about consumers and dealers facing higher costs, President Cody Lusk said.

“This could put the average monthly payment for a new car up by hundreds of dollars,” depending on the vehicle, he said. The AIADA has commissioned a study on the tax’s economic impact to provide to lawmakers in the coming weeks.

Auto-parts suppliers also are scrambling to assess the impact. Tenneco Inc., which makes exhaust systems, would be “a clear winner,” since it doesn’t rely on Mexico for imported parts, Barclays’s Johnson said. Tenneco’s earnings per share could jump by more than 10 percent, he estimates.

Visteon Corp. and Dana Inc., on the other hand, both have significant Mexican operations and could see their earnings drop by as much as 5 percent, Johnson said. Visteon specializes in cockpit electronics, while Dana sells axles and driveshafts.

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