President Donald Trump announced a 90-day pause on reciprocal tariffs, but vehicle duties remain. While the announcement offers a temporary reprieve, the underlying uncertainty remains high. In today’s episode of CBT Now, Cox Automotive’s Chief Economist, Jonathan Smoke, joins us to share his insights on the situation and what this means for the economy and auto industry.
The pause on tariffs reduces the immediate risk of the global trade war spiraling into a recession in the U.S. and globally. However, the stakes are still extremely high, and the automotive industry is already feeling the pressure of the tariffs. Nearly half of the vehicles sold in the United States are imported.
Smoke warns dealers to prepare for a “rollercoaster ride.” While the anxiety surrounding the tariffs is driving customers into the showrooms, the short-term gains will likely be followed by a dampening of consumer demand due to the increase in vehicle pricing.
Smoke draws some similarities in timing and initial consumer reaction to the COVID-19 market. However, there’s a distinct difference in the economic context. There are no stimulus checks or government financial aid this time, interest rates are at a 25-year high, and job growth and consumer strength are more constrained.
AutoTrader, Cox Automotive’s online auto marketplace, saw a record number of leads the past weekend, revealing urgency among buyers. As a result, prices increase, fewer discounts are available, and incentives are reduced.
The used car market is beginning to show noticeable changes. According to Manheim, it recorded its most significant weekly increase since 2021. However, Smoke predicts that, unlike in 2020, when consumer demand stayed strong despite rising prices, we are unlikely to see the same trend this time. As prices continue to increase, demand is expected to decrease.
The Trump administration has also proposed an additional tariff on auto parts, set to effect May 3. Smoke predicts that this specific tariff will be even more disruptive to the U.S. industry than the 25% auto tariffs that went into effect earlier this month. It will impact the cost of repairs, maintenance, and insurance, which are already negatively impacting affordability.
Smoke predicts that if the 25% tariffs on auto imports hold, the industry is likely to see:
- 10% price increase on imported vehicles
- 5% price increase on domestic vehicles
- Affordable cars priced under $30K will likely cease to exist
- We will see an increase in leasing and extended terms
Smoke highlights that dealers are adaptable and that the industry successfully weathered the COVID crisis. He advises dealers to adapt to leverage the opportunities this situation will create, but he warns against expecting the same dynamics as in 2020. While short-term demand may offer a boost, Smoke cautions that rising costs could drastically shift consumer demand in the months ahead.
"I am confident. The most important lesson we learned from COVID is that dealers find a way to handle what is presented to them and actually improve things as a result. I just want people not to expect the same dynamics that we had back in 2020." – Jonathan Smoke
