President Trump’s tariffs on three key U.S. trade partners, which are set to go into effect Tuesday, could drive up automobile costs for U.S. consumers by thousands of dollars and put a dent in U.S. car sales, industry analysts and U.S.-based automakers say.
The 25% tariffs on goods from Canada and Mexico, as well as an additional 10% tariff on imports from China, could drive up car costs by as much as $12,200 for some models, according to a report from Anderson Economic Group (AEG), a Michigan-based economic consultancy.
The broad-based tariffs are likely to fuel higher costs on multiple types of vehicles, including SUVs, small cars and electric vehicles, according to AEG’s analysis. Higher sticker prices would hit the auto market even as the typical car now costs close to a near-record high of $50,000, and would likely add more financial strain on inflation-weary consumers.
The price hikes from Mr. Trump’s tariffs are likely to be substantial enough that some car buyers might balk at the higher costs, according to AEG CEO Patrick Anderson.
“Our analysis shows the proposed tariffs would have a very big effect on North American assembled cars by multiple automakers,” Anderson told CBS MoneyWatch.
He added, “These are cost increases that cannot be hidden from the consumer. Substantial portions, or perhaps all of it will be passed along to consumers, or manufacturers will stop producing them.”
Some product lines and equipment combination could become uneconomical for automakers to continue producing, he noted. “It would be a huge disruption to the industry,” Anderson said.
Which vehicles could see the greatest price increases?
The range of added costs on vehicles could run from $4,000 to $10,000, with the cost of producing some electric vehicles that rely heavily on components from China rising by as much as $12,200, according to AEG’s analysis.
Here are the projected impacts of the tariffs on some types of popular vehicles, according to the study:
- Battery-powered electric crossover vehicles: +$12,200
- Full-size SUV: $9,000
- Pickup truck: $8,000
- Small car: $6,200
Tariff-driven cost increases may lead to a “potential loss of sales” for domestic automakers, given that consumers might turn to the used car market, or seek out automobiles assembled in Japan, for example, for cheaper alternatives, Anderson added.
“Or, they could decide simply not to buy one at all,” he said.
Automobile supply chains are complex because they involve numerous parts, some of which can cross borders more than once over the course of the assembly process. With tariffs added to the equation, costs could quickly escalate for automakers.
“The automobile sector, in particular, is likely to see considerable negative consequences, not only because of the disruption of the supply chains that crisscross the three countries in the manufacturing process, but also because of the expected increase in the price of vehicles, which can dampen demand,” Cornell University professor of government and public policy Gustavo Flores-Macias said in a statement to CBS MoneyWatch.
Dan Hearsch, Americas leader of the automotive & industrial practice at AlixPartners, a global consulting firm, said the tariffs will present at least a momentary advantage for manufacturers that assemble vehicles in Japan, Korea or Europe, for example.
“For automakers that don’t import from Canada or Mexico, they’ll end up with a little bit of an advantage, because they won’t be hit with this brand-new tariff,” he said. “So for some period of time, vehicles coming in that aren’t subject to additional tariffs will have a big advantage over domestic companies, or those that are producing in Canada, Mexico or the U.S.”
He added, “It’s basically penalizing companies relative to those that are importing vehicles from other places, for now.”
Ford CEO says tariffs would have “huge impact”
In an earnings call with analysts on last month, Ford Motor Company CEO Jim Farley said a prolonged period of higher tariffs would wipe out the company’s profits, drive up vehicle prices and slow economic growth.
“There is no question that tariffs at 25% level from Canada and Mexico, if they’re protracted, would have a huge impact on our industry with billions of dollars of industry profits wiped out and adverse effect on the U.S. jobs as well as the entire value system in our industry,” Farley said. “Tariffs would also mean higher prices for customers.”
Mr. Trump, by contrast, insisted in a post on social media that such tariffs would be a “win” for American industry by driving “massive amounts of auto manufacturing” to Michigan, for one.
Reprinted from CBS
