Fiat Chrysler would take big hit from U.S. import tariffs

Fiat Chrysler Automobiles would take a big hit if President Donald Trump imposes tariffs on cars exported to the U.S. from global markets.

A 25% tariff on imports would reduce Fiat Chrysler's profits by up to €743m annually, according to analysts Evercore ISI.

This figure is the worst-case scenario following Trump’s threat to impose tariffs on vehicle imports on national security grounds.

A 20% tariff on cars built in the European Union, which was also suggested by Trump, would see FCA profits decline by up to €526m, according to calculations by Evercore and Automotive News Europe.

Last year, FCA exported to the US 158,553 cars and trucks from outside of the NAFTA area, up 3.7% from 2016, according to the Automotive News sales database. Sales rose by 2.8% to 66,735 in the first five months compared with the same period in 2017.

Deliveries of Jeep Renegade small SUVs built in Melfi, Italy, account for nearly two-thirds of the total—103,434 in 2017.

All Alfa Romeo and Maserati nameplates sold in the US are also made in Italy, as is the Fiat 500X crossover, which is built in the same plant as the Renegade.

If a high tariff is imposed on Renegades, “FCA will be examining a variety of options,” said George Galliers, an Evercore analyst. “These could include a push to upsell consumers into NAFTA-sourced vehicles, including the Compass and Cherokee models; keeping the European-sourced Renegade in the market but focusing on higher-specification versions; and looking to source Renegades for the US market from Brazil, where it is also produced, or potentially localizing it in the US”

In 2017, FCA exported 136,827 vehicles to the US from the EU — all from Italy — up 4.2% from 2016.

According to figures from the US Commerce Department, last year the U.S. imported $4.8 billion worth of passenger vehicles from Italy. That nation was the third-biggest EU exporter of cars to the US after Germany and the UK.

FCA also exports vehicles to the US from non-EU markets. These are the 500L minivan built in Serbia, the Ram Promaster City small van produced in Turkey and the Fiat 124 Spider roadster from Japan, where it is built by Mazda alongside the Mazda Mx-5.

About 9% of FCA’s unit sales in the US are vehicles imported into the U.S. from outside of the NAFTA area, according to Evercore ISI, a higher figure than 6% for General Motors and 4% for Ford. With an estimated average revenue per vehicle of €22,000, FCA imports generate €3.3bn, Evercore ISI said, with a profit margin of 3.5% and €116m earnings before interest and taxes (EBIT).

Assuming the same revenue per vehicle of €22,000, revenues from FCA vehicles imported from the EU were €3bn in 2017; according to Automotive News Europe calculations. If the U.S. government raises import tariffs on cars imported from the EU to 20% from the current 2.5%, this would reduce the automaker’s EBIT by €526m.

These calculations assume sales prices remain unchanged. FCA, like all competitors, could decide to raise prices and have the customers shoulder part of the burden. This option likely would lead to a large decline in vehicle sales.

FCA’s smaller vehicles are most exposed to the tariffs. Jeep Renegade prices in the US start at $18,445 before sales tax, according to the company’s US website. The additional tariff would have an impact of more than $3,000, pushing the crossover’s price above that of the Mexico-produced Jeep Compass, which starts at $21,095 in the US.