Car companies are paying tariffs so you don't have to

Miami Herald

6 days ago

So far President Donald Trump's trade polices have had almost no effect on new car prices. But almost no one expects that to last.
By the end of the year, if not sooner, tariffs as much as 27.5% on cars and car parts will force sticker prices to rise significantly, analysts say, pushing new vehicle purchases out of the reach of many Americans.
Tariffs have already chopped billions of dollars from carmakers' bottom lines. That is because the companies, fearful of losing sales, have absorbed most of the burden of Trump's new duties rather than passing it on to car buyers. The carmakers also haven't been hit by the full force of tariffs yet. Many dealers and manufacturers stockpiled cars and parts before the tariffs took effect.
'We haven't raised prices due to tariffs, and that's still our mantra,' Randy Parker, chief executive of Hyundai and Genesis Motor North America, said in an interview this month.
That is good news for Trump and Republicans in Congress because it insulates them from the political consequences of higher sticker prices, which would also contribute to inflation.
Carmakers 'will try to hold prices and focus on cost reduction for as long as they can,' said Lenny LaRocca, a partner at KPMG who leads the consulting firm's work with the auto industry.
But, LaRocca said, 'clearly it's not sustainable.' He predicted that automakers would start raising prices significantly early next year.
No car company is immune. Even those that make most of their vehicles in the United States use imported parts that can amount to more than half the value of some cars. In recent weeks General Motors, Toyota, Ford Motor, Stellantis, Tesla, Mercedes-Benz and Volkswagen have all blamed tariffs for declines in profit.
Ford, which makes most of its cars in the United States, expects retail prices for its vehicles to rise just 1% this year, Sherry House, the chief financial officer, said last month during a conference call with reporters.
But that's not because the tariffs aren't having an effect. Import duties subtracted $800 million from Ford's profit in the second quarter, leading to a slight loss for the period. For the whole year, Ford estimated that tariffs would cost the company $2 billion.
General Motors, the largest U.S. carmaker, said last month that tariffs would cost the company as much as $5 billion for the full year, although it hoped to offset about a third of that amount by cutting costs and moving some manufacturing to the United States. Still, the company expects retail prices to rise 1% or less this year, Paul Jacobson, chief financial officer of GM, told investors last month.
Toyota, which makes many cars in the United States but also imports them from Japan, Mexico and Canada, said Thursday that tariffs would cost it $9.5 billion. A day earlier, Honda pegged its tariff cost at $3 billion.
Tariffs and sinking profits could make it harder for carmakers to do what Trump wants them to do -- relocate assembly lines to the United States from other countries. Companies will have less money to invest in new factories and equipment.
The Trump administration maintains that deregulation, tax deductions for equipment purchasing and other measures will be positive for the industry.
'Two things can be accomplished at once: We can lower costs for everyday Americans while restoring American auto dominance,' Kush Desai, a White House spokesperson, said in an email. 'The administration is working closely with the auto industry to deliver on both fronts.'
Car prices as measured by U.S. officials declined slightly in June, Desai pointed out, 'despite months of autos, auto parts, steel and aluminum tariffs being in place.'
Others see signs that prices are beginning to creep higher. Cox Automotive estimates that tariffs will add at least $5,000 to the cost of imported cars on an annual basis. Even for cars manufactured in the United States, tariffs on components add about $1,000, not including the 50% duties that Trump has imposed on imported steel and aluminum.
By the end of the year, prices could be 8% higher, Cox says, pushing the average selling price of a new car above $50,000.
Higher prices would fall hardest on less affluent consumers. Many of the least expensive cars are imported, like the Chevrolet Trax made in South Korea or the Nissan Versa made in Mexico.
Some car buyers will be able to afford only used models. And higher demand for pre-owned vehicles will push up their prices, too. Adding to the pain, buyers of used cars often pay much higher interest on loans, which can exceed 20% for people with less-than-stellar credit records.
The cost of repairs and parts will also rise. So far the price increases have been modest, said Michael Holmes, co-chief executive of Virginia Tire and Auto. The chain of auto repair and maintenance shops adds a tariff surcharge to prices to reflect the additional cost. That can range from 50 cents or so for an air filter to around $5 for a tire.
But the surcharges could rise depending on where tariffs on parts from Mexico and Canada end up, he said.
His biggest problem, Holmes said, is staying abreast of shifting trade policy. 'You get exhausted trying to figure out where all these tariffs are,' he said.
Trump policies have some financial benefits for carmakers. The Republican domestic policy bill passed last month eliminated penalties for violating clean air standards. That angered environmental groups but allows carmakers to build more big SUVs and pickups, which tend to have the highest profit margins.
The end of those penalties has also freed established carmakers from having to buy clean air credits if they fall short of emissions targets. That will save GM and others hundreds of millions of dollars, but comes at the expense of companies that have lots of credits to sell, like Tesla and Rivian, because they make only electric vehicles that emit nothing from tailpipes.
Car executives are hopeful that the Trump administration will take further steps to ease the impact of tariffs. 'We're having very constructive conversations with them to ensure a more level playing field,' House, the Ford chief financial officer, told reporters this month.
But Trump continues to threaten substantial tariffs on Mexico and Canada and has yet to reach a permanent trade deal with either. Both countries are critical suppliers of vehicles and parts and are important destinations for parts and vehicles made in the United States.
The policy bill also contained a measure designed to stimulate demand for cars. The provision lets taxpayers deduct from their taxes the interest they pay on loans used to buy cars assembled in the United States. But the value of the deduction will be relatively small, in the hundreds of dollars for most people.
'We don't think it's really going to drive demand,' said Erin Keating, executive analyst at Cox Automotive.
This article originally appeared in The New York Times.
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