German carmakers dismayed as US weighs auto tariffs

VW Golfs are loaded in a delivery tower at the plant of German carmaker Volkswagen in Germany. (Reuters)
Updated 24 May 2018
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German carmakers dismayed as US weighs auto tariffs

  • US Commerce Department mulls tariffs on car imports
  • “One-sided protectionism has never helped anyone in the long term," says Volkswagen

FRANKFURT: German automakers reacted with dismay Thursday as the US Commerce Department said tariffs on car imports could be on the horizon, potentially opening a new front in a burgeoning transatlantic trade conflict.
“One-sided protectionism has never helped anyone in the long term. Only free and fair trade secures increased prosperity,” a spokesman for industry behemoth Volkswagen told AFP.
American Commerce Secretary Wilbur Ross had announced Wednesday he had initiated a so-called Section 232 investigation on auto trade — which would provide the legal basis to impose tariffs, if his department finds imports threaten US national security — after speaking with President Donald Trump on the matter.
Ross promised “a thorough, fair, and transparent investigation into whether (auto) imports are weakening our internal economy and may impair the national security.”
The move comes as a June 1 deadline approaches for the White House to decide whether imports from the EU will remain exempt from border taxes slapped on steel and aluminum.
Trump’s recourse to national security arguments for potential tariffs echoes his justification for the metals duties.
In a separate statement released by the White House, the president said “core industries such as automobiles and automotive parts are critical to our strength as a nation.”
Germany’s Federation of the Automotive Industry (VDA) noted that German carmakers employ some 36,500 people in the US and car parts producers 80,000 more.
And it highlighted German firms’ “significant contribution to the American balance of trade in cars” with their exports to third countries.
“An increase in tariff barriers should be avoided,” the body said, saying it had “always spoken out in favor of mutual reductions in tariffs and for free-trade agreements.”
German carmakers exported 494,000 vehicles to the US last year, the VDA said, while the Chambers of Commerce and Industry (DIHK) calculated autos and parts accounted for €28.6 billion ($33.6 billion) of Germany’s €111.5 billion in exports to the US.
Shares in Volkswagen, high-end BMW and Mercedes-Benz maker Daimler were among the worst performers in the DAX index of blue-chip German shares just before midday (1100 GMT) Thursday.
Imposing car tariffs would open yet another front in the Republican president’s confrontational rows over trade that have drawn global outcry from allies and partners.
“Evidence of significant economic damage due to the trade conflict is mounting,” tweeted economist Marcel Fratzscher of the DIW think-tank in Berlin.
“The Trump administration now adding new threats with tariffs on European cars could make things a lot worse.”
The latest announcement comes as negotiations with Canada and Mexico over revamping the continent-wide North American Free Trade Agreement (NAFTA) have stalled over auto demands.
Trump had earlier blamed the US neighbors to the north and south for being “difficult” in talks to renegotiate the pact.
The contrast with a Thursday visit by German Chancellor Angela Merkel to Chinese premier Li Qeqiang could not have been starker.
“China and Germany are on the path of promoting multilateralism and bolstering free trade,” Merkel said in Beijing.
Meanwhile Japan’s trade minister Hiroshige Seko said Thursday that car tariffs would “plunge the world market into confusion” and be “extremely regrettable.”
Passenger cars make up around 30 percent of Japan’s total exports to the United States and Tokyo has already threatened Washington with retaliation at the World Trade Organization for the steel tariffs.
The Wall Street Journal reported earlier Wednesday that Trump was asking for vehicle import tariffs as high as 25 percent.
That would move US policy in the opposite direction from China, where President Xi Jinping recently offered to cut border taxes to 15 percent from 25 percent.
In its statement announcing the inquiry, the Commerce Department cited figures showing that US employment in automobile manufacturing had dropped by 22 percent from 1990 to 2017.
“After many decades of losing your jobs to other countries, you have waited long enough!” Trump wrote in a tweet addressed to “our great American autoworkers.”
Trump — whose protectionist platform helped launch him to the White House — has repeatedly floated the notion of steep tariffs that would shield the US auto industry.
He has specifically targeted Germany, and argued that American cars are slapped with higher tariffs than those imposed on European autos.
US cars sold in the EU are hit with 10 percent duties, while the US imposes just 2.5 percent on cars from the EU.
But Washington imposes 25 percent tariffs on European pick-ups and trucks — which the EU taxes at a much lower 14 percent on average.


Slack primed as latest unicorn to make market debut

Updated 19 June 2019
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Slack primed as latest unicorn to make market debut

  • Slack is a cloud-based software company that markets online tools for information sharing and workflow management
  • Current customers include Nordstrom, Ford and HSBC and the company has more than 95,000 paid customers overall

NEW YORK: The 2019 parade of big new Wall Street entrants continues this week with the debut of Slack Technologies, underscoring investor hunger for new companies in spite of some high-profile stumbles.
Nearly halfway through the year, US markets are on track for one of the biggest IPO seasons ever in terms of money raised following a stream of offerings from former “unicorns,” private companies worth more than $1 billion.
Yet two of this year’s biggest names — Uber and Lyft — currently trade below their IPO price, along with Snapchat, which has lagged its initial price for most of the time since it went public in March 2017.
Still, there have also been plenty of prominent companies that have risen since their initial public offerings, including jeans company Levi’s, Tradeweb Markets, which builds electronic marketplaces, Zoom Video Communications, and mobile application and software system Pinterest.
The most dramatic jump has been in food company Beyond Meat, which now trades at more than six-fold its entering price.
“The public has a huge interest” in new companies, said JJ Kinahan, chief market strategist at TD Ameritrade, adding that the mixed performance of the 2019 ex-unicorn class is comparable to that of the broader market.
“There aren’t a lot of other choices besides IPOs for investors seeking growth,” said Gregori Volokhine, president of Meeschaert Financial Services, who attributes the rush of funds in part to central bank policies promoting liquidity.
“There’s an excess of underinvested funds worldwide,” he said.
In terms of sheer volume, the number of IPOs in 2019 so far — 93 — is roughly equal to last year’s figure, according to Dealogic.
But the funds raised, $34.5 billion, stand 13.6 percent above last year’s sum and the highest for the comparable period since 2000, according to Dealogic data.

Direct listing
A cloud-based software company that markets online tools for information sharing and workflow management, San Francisco-based Slack parts ways from the other big companies this year by opting for a direct listing instead of an IPO.
This approach, which was also employed by Spotify last year, cuts down on fees to investment bankers in IPOs. Although existing shares can be sold, a direct listing does not issue new shares, averting share dilution but also forgoing the new funds raised in an IPO.
The process can also be riskier in terms of share price volatility compared with an IPO, where underwriters line up investors in advance. In a direct listing, shares are exposed more directly to the open market.
Slack chief executive and co-founder Stewart Butterfield described the company’s technologies as a “brand new category of software” that replaces email in a company.
Current customers include Nordstrom, Ford and HSBC and the company has more than 95,000 paid customers overall.
“It turns email to messages and organizes them into team, project and topic based channels instead of individual in-boxes,” Butterfield said in a June 10 earnings conference call.
“It’s a team-first approach to communication, in contrast to email’s individual first approach. It creates a rich, searchable, permanent body of information that’s widely available across an organization, even for people who just joined the team.”
 

Unprofitable three years
The company, which is expected to be valued at around $17 billion when it enters the market on Thursday, reported revenues of $134.8 million in the quarter ending April 30, up 66.7 percent from the year-ago period.
But Slack, which has been unprofitable the last three years, reported a $33.3 million loss during the period, 34 percent more than last year’s loss.
Of course, many unprofitable companies have gone public and done well in markets for years. Yet the heavy losses and murky profit outlook at Uber and Lyft have been seen as factors in their lackluster performance since going public.
But investors remain keen on growth stories following the success of Amazon, Facebook and other tech giants that have emerged in recent decades.
A key beneficiary of this desire has been Beyond Meat, which has multiplied in value many times since going public May 3 at $25 and currently is priced at $168.92. The company has been seen as a main beneficiary of the growing alternative protein market, which some analysts think could top $100 billion in the coming decade or so.
Kinahan said in general investors have wised up after the early 2000s Internet bubble but that “it’s just unnatural” for stocks like Beyond Meat to move in an unbroken straight line upwards.
“There’s a healthy bit of skepticism in the market,” he said. “However, certain companies have maybe gotten a little ahead of themselves.”