What the U.S.-EU trade deal means for the auto sector

U.S. President Donald Trump has hailed the framework trade agreement with the European Union as the biggest trade deal ever made and one that promises to be “great for cars.”

An agreement brokered on Sunday between the U.S. and the EU means the Trump administration will impose a blanket tariff of 15% on most EU goods.

It represents a significant reduction from Trump’s threat to impose charges of 30% from Aug. 1 and almost halves the existing tariff rate on Europe’s auto sector from 27.5%.

Sitting alongside the U.S. president in Scotland on Sunday, European Commission President Ursula von der Leyen described the agreement as a “good deal” following tough negotiations.

Industry groups and analysts have since welcomed the development, while expressing deep concern about the new tariff reality.

The German Association of the Automotive Industry (VDA) said Monday it is “fundamentally positive” that the U.S. and EU have managed to secure a deal that averts a transatlantic trade dispute.

“The decisive factor now will be how the agreement is structured in concrete terms and how reliable it is,” VDA President Hildegard Müller said in a statement.

“However, it is also clear that the US tariff of 15 per cent on automotive products will cost German automotive companies billions annually and place a burden on them in the midst of their transformation,” Müller said.

Alongside a call to ensure automotive supply chains receive the necessary support, the VDA also pushed for the EU to make the framework conditions internationally competitive for investors and companies “in order to become more attractive and relevant as an investment location again.”

The European Automobile Manufacturers Association, an industry lobby group, said Monday that the U.S.-EU trade agreement represents an important step toward easing “intense uncertainty,” welcoming the development in principle.

“Nevertheless, the US will retain higher tariffs on automobiles and automotive parts, and this will continue to have a negative impact not just for industry in the EU but also in the US,” ACEA Director-General Sigrid de Vries said in a statement.

ACEA said it would closely examine the details of the agreement that still need to be clarified.

Rico Luman, senior sector economist for transport and logistics at Dutch bank ING, said Monday that the new tariff rate of 15% on cars exported from the EU to the U.S. is clearly much better than 27.5% — but it still reflects “a significant burden” for automakers.

“Margins are under pressure in a multi-challenge market and the bill can’t be fully passed on to customers without volume losses,” Luman told CNBC by email.

Second-quarter earnings season showed that carmakers were already struggling with the tariff impact, Luman said, noting there’s more to come over the coming months.

“The weakened dollar also makes US car imports more expensive and complicate things. That’s why global car makers are all looking for ways to adjust manufacturing footprints within current facilities,” he added.

The Stoxx Europe autos index led gains during early morning deals, up as much as 1.6%, before paring almost all its gains. French car parts supplier Valeo traded 3.9% higher at 10:15 a.m. London time (5:15 a.m. ET), with luxury Italian carmaker Ferrari up around 1%. Germany’s BMW, Volkswagen and Mercedes-Benz Group, however, were all down more than 0.5%.