GM may increase China production after tariffs, says JPMorgan

MICHIGAN, Dec 15 (Bloomberg): General Motors Co. (GM) may hasten plans to increase output in China after regulators in the world's largest automobile market said they will impose punitive duties on some vehicles imported from the US. Levies of as much as 12.9 per cent for its autos "may accelerate GM's localization plans," Himanshu Patel, a New York-based analyst for JPMorgan Chase & Co., wrote in a note to clients Wednesday. The Detroit-based automaker already plans to add local production and only 1.3 percent of GM's 2.43 million vehicles sold in China last year were imported, he wrote. China's decision to increase import levies comes three months after the World Trade Organization rejected its appeal of a ruling backing US duties on tire imports. China's auto sales are rising at the slowest pace in 13 years, pressuring local producers to consolidate as foreign carmakers post gains. "The move shows that China is always capable of intervening politically in its markets," said Juergen Pieper, a Frankfurt-based analyst with Bankhaus Metzler. "The automobile industry is very dependent on China for growth, and there's doubts about the pace of future expansion." Automakers declined on concern higher duties may soften demand in the Chinese market, which LMC Automotive says may rise to 21 million passenger-car sales by 2015. GM fell 3.2 percent to $19.47 in New York trading, the lowest closing price since its initial public offering in November 2010. The tariffs will have a "modest impact" on GM, JPMorgan's Patel said, because most of the automaker's vehicles imported to China are low-volume models such as the Buick Enclave and Cadillac SRX sport-utility vehicles. "Our goal is to build where we sell," Klaus-Peter Martin, a company spokesman, said in a phone interview. About half of a percentage point of sales in the region come from the GM's North American plants, he said. Duties may be as much as 8.8 percent for Chrysler Group LLC, the Auburn Hills, Michigan-based maker of Jeep SUVs, China's commerce ministry said yesterday on its website. The U.S. units of Bayerische Motoren Werke AG (BMW) and Daimler AG (DAI) will face duties of 2 percent and 2.7 percent respectively, it said. Ford Motor Co. (F) is not affected by the tariffs, Todd Nissen, a company spokesman, said in an e-mail. The only vehicle Ford imports into China is its Edge SUV built in Canada. The levies affect vehicles with engines that are above 2.5 liters in size, according to the ministry's website. Honda Motor Co. (7267)'s US operations and other automakers the ministry didn't specify will also be subject to the tax. China currently imposes tariffs of 25 per cent on imported cars. BMW leads automakers that have "material exposure" to the duties with about 25,000 vehicles imported from North America, Itay Michaeli, a New York-based analyst for Citigroup Inc., wrote in a note to clients. Chrysler imports about 24,000 primarily through its Jeep brand and Daimler imports about 18,000, he said. Fiat SpA (F), which controls Chrysler, declined 21 cents, or 5.5 percent, to 3.55 euros in Milan trading. BMW fell 5.1 percent to 50.25 euros, while Daimler dropped 3.1 percent to 31.66 euros in Frankfurt. The WTO in September rejected China's appeal of a ruling by the organization's judges last December that found tariffs on $1.8 billion of car and light-truck tires from China were legal. President Barack Obama imposed the duties of as much as 35 percent in September 2009 under a so-called safeguard provision designed to protect U.S. producers from a surge in imports.