The Trump administration tariff on import cars could push the price of a well-outfitted BMW 5 Series from $80,000 to $100,000, depending on where the car is assembled and where the parts are made and shipped from.
BMW has to hope, probably in vain, that its brand image will keep the buyer for this car instead of that buyer deciding to turn to a Cadillac. Some may not, if they want to own “The Ultimate Driving Machine.”
So the pivot of people to Cadillacs could help General Motors Co. (NYSE: GM), which has struggled mightily to sell its embattled luxury brand’s models. Cadillac dealers will get richer.
Economic theories sometimes argue that the coffee shop next to the Cadillac dealer will get some walk in business. The Cadillac dealer will even get another swipe at customers when they bring cars in for service. However, the benefits mostly end with the sale of that cup of coffee.
The Cadillac buyer may be a farmer, though probably not since farmers are not a huge number of luxury car buyers, when tariffs hit agricultural commodity prices. Or, the potential buyer could be a small manufacturer who relies on German parts. (In a trade war, more than cars will be hit with tariffs.) Suddenly, the luxury car pool of buyers make be drained, if only ever so slightly. The rosy future for the Cadillac dealer looks a bit less healthy.
The tariff on German cars hurts BMW. It is not guaranteed that it helps someone else.
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