Disappointed that Europeans aren't purchasing more American automobiles, Donald Trump has threatened to impose high tariffs on EU auto imports. But why aren't American automobiles—with the remarkable exception of Tesla—more well-liked in Europe?
The narrow, cobbled alleyways of Italy's historic towns and cities provide a clear explanation for why Europeans "don't take our cars," as US President Donald Trump once said.
Or, in the words of auto industry analyst Hampus Engellau: "Try to drive a large SUV around Italy. It's really challenging, but I've done it.
According to Mike Hawes, CEO of The Society of Motor Manufacturers & Traders, the UK trade association, "if you add cost to the question, it becomes obvious why you don't see too many American pick-up trucks on European roads."
"We tend to have higher fuel prices than the Americans, so we prefer smaller, more fuel-efficient vehicles, while they generally prefer larger vehicles."
Mr Engellau, who works for Handelsbanken Capital Markets, a Swedish investment bank, also points out that gas prices are significantly lower in the US. "They pay per gallon what we pay per litre," he claims. One US gallon is equivalent to 3.8 litres.
However, these distinctions haven't stopped European automakers from expanding their market share in the US. As Mr. Trump once again stated, "millions of cars coming in - BMW, Mercedes, Volkswagen and many others" are arriving in the US.
692,334 brand-new cars from the EU were sent to the US in 2022, valued at €36 billion ($37 billion; £30 billion). For €5.2 billion, just 116,207 new cars built in the US went the other way.
Mr. Trump claims that this disparity needs to be fixed since it is the result of unfair trading regulations.
Mr. Engellau clarifies that "Mr. Trump is concerned because the terms of trade are not really equal," citing the fact that the US now imposes 2.5% tariffs on cars imported from the EU, which is significantly higher than the EU's 10% tariffs.
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In Europe, little automobiles are significantly more common than in the US.
Trump has stated that he wants to increase US taxes on European auto imports as a result of these discrepancies. He has already declared 25% import taxes on aluminium and steel, two metals that automakers depend on.
To shield Europe's automobile sector from a possible trade war, Trump's action seems to have spurred EU leaders to think about lowering their own duties.
Jim Farley, the head of the US automaker Ford, is not pleased with Trump's interference. He recently stated, "So far what we've been seeing is a lot of cost and a lot of chaos," according to NBC News.
Andy Palmer, a veteran of the automobile business who was once the CEO of Aston Martin and the chief operating officer of Nissan and is now a consultant, believes that the very emphasis on trade may be misguided. "You should avoid shipping automobiles all over the world if at all possible. "They're large, pricey air boxes," he explains.
Carmakers often aim to "manufacture close to where the customer is based" because the automotive industry is global, according to Mr. Hawes of the SMMT.
As a result, a number of European automakers, most notably brands like BMW, Mercedes, and Audi, are producing some of their biggest automobiles in North America to export back to Europe.
In the past, US automakers have used such tactics in Europe. General Motors owned and produced European brands, including Saab and Opel/Vauxhall, but closed the latter in 2009 and sold the former in 2017.
In the meantime, Ford sold out Volvo in 2010, Jaguar and Land Rover in 2008, and Aston Martin in 2007.
Ford is presently shifting its European business away from tiny, inexpensive cars like its Focus models and towards electric and commercial vehicles after years of financial losses.
By 2027, Ford intends to reduce its workforce of 28,000 employees in Europe by 14%, with 800 jobs to be eliminated in the UK and 2,900 in Germany.
Elon Musk's Tesla manufactures its Model Y vehicles for the European market at a factory in Germany close to Berlin, but even there are challenges as low-cost Chinese imports, in particular, increase their market share in Europe.
Jose Asumendi, head of European automotive research at investment bank JP Morgan, said Europe is a very difficult market for automakers. "You need to have the right products, and you need to run the manufacturing plants well."
He also mentions companies that have a competitive edge in their native markets, such as Fiat and Alfa Romeo in Italy, Peugeot, Citroen, and Renault in France, BMW, Mercedes, Volkswagen, and Audi in Germany.
"There's a natural inclination for people to buy local champions, especially in Germany, France and Italy," says Asumendi.
He continues by saying that although other European nations are more accepting of other brands, the market is crowded with a large number of cars from South Korea, Japan, and, more and more, China.
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Andy Palmer, a veteran of the auto business, claims that auto tariffs hinder innovation.
Different tax laws and the requirement to communicate in many languages make Europe more complicated for foreign automakers.
Mr. Asumendi concurs with Mr. Palmer that "European customers have no particular objections to American cars." "I think Europeans do like American brands, but there are many other brands available in Europe, so competition is fierce," he claims.
Mr. Trump wants to strengthen the American auto sector by bringing more innovation and production domestically. However, Mr. Palmer is adamant that this cannot be achieved through a vehicle trade war with Europe.
Because tariffs "insulate the beneficiaries from the free market, and this merely makes them lazy, so they stop innovating and fail to remain competitive," he claims, in particular.
"It's not about trade," Mr. Palmer continues. "It's about investment and collaboration."
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