Many are wondering what the markets have in store for automakers, dealers, and car buyers in 2019. While there are many factors at play, the picture is not complete without looking at the role the Federal Government plays. One of the main issues many analysts, automakers, and other main players are keeping an eye on is President Trump’s trade restrictions and accompanying tariffs. In 2018, taxes on imported aluminum and steel added approximately $240 to the production of a new car.
As a result, it is likely that this hike increased car prices for consumers by $1,300. In addition to the tariffs on metal supplies, Trump’s main target regarding tariffs has been China. Since mid-2018, both countries have called a temporary truce on retaliatory tariffs, but there is potential for the process to begin again as Trump continues to express interest in creating tariffs on imported goods from around the globe. How would this (as well as existing tariffs) impact the auto industry, including dealers and customers? Read on for our takeaways.
Tariffs are Costly, But by How Much?
Last year, even with the tax credit, higher costs on aluminum and steel took away profits of $1 billion from General Motors and Ford. Many other automakers are feeling the heat, and a lot of the issues begin with metal suppliers. Since the increase in the cost of aluminum and steel, many supplying companies are passing the costs along to automakers like General Motors and Ford.
Regarding global tariffs, even with the ceasefire, Trump has expressed interest in increasing Chinese tariffs to 25 percent in January of this year. So, how could these moves impact dealers and customers? Prices for cars would likely be raised to $2,270 for domestic vehicles and $6,875 for imported vehicles. Cars are not the only automotive related product that would see a substantial increase in price. A study on the “Consumer Impact of Potential U.S. Section 232 Tariffs and Quotas on Imported Automobiles & Automotive Parts,” found that higher automotive parts prices will also require dealers to increase the cost of vehicle maintenance and repair. Both are significant hits to dealer and consumer pockets that would likely lead to the next problem.
A Significant Decline in Sales
The above-mentioned Consumer Impact study found that a 25 percent hike in Chinese goods (along with the current tariffs on aluminum and steel) would ultimately lead to 2 million fewer cars sold each year. Specifically, the Center for Automotive Research says that from 2019 to 2025, cars sold would approach 16.5 million units. For many consumers, new vehicles will likely be the last resort, with used vehicles being more highly sought after. Dealers will have to make up the cost somehow by having to continue to increase pricing on new cars while also doing the same with used vehicles.
The Impact on Jobs
Both auto dealers and consumer occupations will be significantly affected by a tariff hike. A study commissioned by Koch Industries and conducted by consulting firm, ImpactECON, found that we could begin to see job losses that amount to 2.75 million. This would lead to a large number of citizens that would not be in the best financial position to purchase a new vehicle. However, the job losses would also directly impact auto dealers. The Consumer Impact study also revealed that auto dealers could see a loss of 117,500 of 1.1 million new dealership positions, with the average franchised dealership losing seven employees. Dealers will have to accomplish more with less while also trying to keep morale steady in the face of potential layoffs.
It is important to note that while current tariffs will still have a potentially negative impact on automakers, dealers, and consumers, much of the above projections depends on if the Chinese tariffs increase to 25 percent. If they do, many in the automotive industry will have to reassess their sales strategies and prepare for large-scale economic shifts. Knowing the potential problems ahead of time can help dealers brace for potential hits down the line. Information from various studies mentioned above reveals how important it is to always consider all players that can impact automotive sales markets, including the Federal Government.