Volkswagen Fears Pricey Jettas as Thorny Mexico Trade Talk Continues

A border tax placed on Mexican goods bound for the United States would be a worst-case scenario for struggling Volkswagen.

The automaker, which already knows a few things about worst-case scenarios, is waiting on pins and needles to see if the proposed tax prices its small cars out of the market.

Mexican manufacturing has been a boon to VW. Its Puebla assembly plant, surpassed in size only by its hometown plant in Wolfsburg, cranks out Jettas, Beetles and Golf variants for various markets, including America. Last year, 60 percent of the brand’s U.S. volume crossed the Texas-Mexico border.

Building its compact cars in Mexico not only saves the company money, it allows VW to offer the models for a reasonable price (even though domestic and Japanese rivals undercut the vehicles’ MSRP). President Donald Trump’s tentative 20-percent border tax could throw the whole operation into disarray, adding costs that would need to be recovered through sticker prices. Executives and dealers now worry the maligned brand’s post-emissions scandal comeback is in danger of fizzling.

“It would be catastrophic,” Fred Emich, general manager of a Denver, Colorado dealership, told Automotive News. Emich said that VW prices already top that of its competitors, meaning few people would pay more for the same product.

Research company Baum & Associates LLC recently tabulated what such a tax would mean for vehicle MSRPs. Volkswagen, which relies heavily on Mexican manufacturing, didn’t fare well. On average, the markup would be $5,800 per vehicle.

A base Jetta carries a $17,895 MRSP in the U.S., while an entry-level Golf goes for $19,895. VW’s new Golf Alltrack is already a price heavyweight, at $26,950. Should the company’s worst-case scenario occur, VW might be looking at a Jetta that retails for as much as — or more than — a U.S.-built midsize Passat (which carries an MSRP of $22,440). The Golf Alltrack could enter Audi territory.

Of course, several other foreign rivals would see increases of their own, as VW doesn’t exist in a vacuum. However, domestic automakers would only very minor increases, at least compared to companies like VW. That would mean an instant leg-up for many Detroit Three models.

A solution would be to simply build more vehicles in the U.S., but that isn’t so simple. Thanks to the diesel emissions scandal, which carried a price tag of about $23 billion in the U.S., VW doesn’t have much cash to play with. The automaker is counting on a sales turnaround to boost its fortunes.

This article first appeared on The Truth About Cars