No. of Recommendations: 11
From the "sales to end users" point of view, VAT and other purchase taxes can indeed be considered cheating of sorts. Look at it this way:
Germany and USA each produce a good car for $40,000 and want to sell it for $50,000 to produce a $10,000 gross profit that will result in some net profit around 10% as expected by the owners of the business.
Germany makes their car in Germany, ships it to the USA, and sells it for $51,000 plus 7% sales tax (in FL let's say, most states have a sales tax on cars in this range). So the end customer pays $51,000 + $3,570, or $54,570 in total.
USA makes their car in the USA, ships it to Germany, and sells it for $51,000 plus 10% import tax plus 19% cumulative VAT. So the end customer pays $66,759 in total. It's a lot easier to sell a car for $55k (USA) than it is to sell it for $67k (Germany), so the US auto companies sell many fewer cars in Germany than German auto companies can sell in the USA. Yet they both produce the car for $40k or so.
There are some serious issues with the conclusions.
Most significantly, you've forgotten the US import tariffs on light vehicles. 2.5% on cars, 25% on light trucks. The US passenger market is about 75% light trucks, not coincidentally: being protected by such a high tariff wall, the producers have a huge incentive to convince/force every buyer possible to opt for a profitable oligopoly truck rather than a car that faces competition. (you wouldn't weight by number imported, since the 25% tariff all but prohibits any pickups from being imported). So the market weighted average US import duties on vehicles used primarily for passenger purposes are considerably higher than in the EU.
The main reason US passenger vehicles (cars and light trucks) aren't seen to sell well in Europe are twofold:
* Many US vehicles aren't very well suited to the typical uses. Fuel is very expensive, and parking spots are generally 7.5 ft wide versus (say) 8.5 to 9 in the US. Cars from non-US non-EU regions do pretty well in Europe facing the same tariff, as they are suited to the local use. The car I drive most often is a Daihatsu.
* Unknown to most, US passenger cars do in fact sell pretty well. Other than cars from the UK, which was until recently an integrated part of the EU motor vehicle chain and so only "half" counts as an exporter to the EU, the US has the highest passenger car market share of any source country selling into the EU. OK, not quite true, as China has taken the lead just recently. This fact is perhaps not very visible because the US is not that big a big producer of passenger cars - the tariffs and odd fuel rules (huge advantage towards trucks which are in effect exempt from CAFE rules) mean that light trucks dominate both production and consumption.
Jim
