The 25% rates that President Donald Trump has determined on imported vehicles, which came into force last week, are already causing tremors in the auto industry, leading companies to stop sending cars to the United States, closing factories in Canada and Mexico and dismissing workers in Michigan and other states.
Jaguar Land Rover, based in Britain, said it would temporarily stop exporting its luxury cars to the United States. Stellantis disabled factories in Canada and Mexico that produced Chrysler and Jeep vehicles and fired 900 American workers who provide engines and other pieces to these factories.
Audi, a luxury division of Volkswagen, also interrupted car exports from Europe to the United States, telling dealers to sell what they still had in their lots.
If other automakers make similar movements, the economic impact can be severe, leading to higher prices of cars and widespread layoffs. Car fees are among the first of various specific rates in the industry that Trump has in mind and can offer initial clues about how companies will respond to their business policies, including increasing prices or increasing manufacturing in the US.
The president said he also wants to tax imports from medicines and computer chips.
Applying the new tariff to imported cars could increase its cost to consumers in thousands of dollars, dramatically reducing the demand for these vehicles. For some Jaguar Land Rover or Audi models, tariffs can reach more than $ 20,000 per car.
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Minimizing impacts
Although much of the initial impact of the tariffs was disturbing, in at least one case Trump fares had the intended effect of increasing production in the United States. General Motors said late last week that it would increase the production of light trucks in a factory in Fort Wayne, Indiana.
The long -term impact of 25% tariffs is not clear. Many automakers are still trying to find out how to avoid increasing prices to the point that consumers can no longer buy new cars. Investors are pessimistic. Ford Motor, GM and Tesla actions have fallen in the last days of negotiation.
“Everyone in the automotive supply chain is focused on what they can do to minimize the tariff impact on their own balance sheets and prices,” said Kevin Roberts, director of Economic and Market Intelligence of Sickles, an online shopping site.
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But automakers never had to deal with the imposition of such high rates so little in advance. They didn’t have so little vision about what the president will do next, analysts and resellers said. “The traditional manual is not enough,” said Lenny Larocca, who leads the KPMG consulting firm team.
Larocca predicted that automakers would increasingly focus on the production of sports utilitarian vehicles and larger and heavier pickups. These vehicles, many of which are mounted on US factories, are usually the most profitable and give companies more room to absorb the cost of tariffs rather than passing it to customers.
Many modern assembly lines are able to produce various models, giving companies flexibility to switch to more profitable vehicles and abandoning vehicles that don’t make so much money. Mercedes-Benz said it will enjoy the flexible mounting lines at its factory in Alabama.
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This strategy comes with disadvantages. It can be harder for car buyers to find new vehicles at moderate prices. The average price of a new car is already almost $ 50,000.
Analysts say this is clear: tariffs will not lead companies to open new factories or reopen closed factories immediately. Companies will not take this step expensive until they are sure that tariffs are permanent and invest hundreds of millions – or billions – dollars in new production capacity will be worthwhile. “I didn’t see big movements,” said Larocca. “It’s waiting to see.”
Reactions and doubts
Some automakers and suppliers expanded their US operations before Trump took office. Many times they were reacting to the coronavirus pandemic when it became risky depending on factories distant for critical pieces. Others made large investments in factories that produce electric vehicles or EV batteries to take advantage of the incentives offered by the Biden government.
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ZF, a German parts manufacturer, spent $ 500 million last year to expand a factory in South Carolina that produces broadcasts to BMW and other automakers. And in recent years GM has opened two new US battery factories with a South Korean partner, LG Energy Solution, to manufacture the most important component of electric vehicles.
In the short term, some foreign automakers can simply stop sending vehicles to the United States, either because they can no longer profit or because they can make more money elsewhere. This may be the case of Jaguar Land Rover. The company, known as luxury sports vehicles made in Britain, sells about one fifth of its cars in the United States.
If other companies stop selling certain models to Americans, consumers will have fewer vehicles to choose from and the remaining automakers will have more maneuver margin to increase prices.
So far, however, rates have not led to widespread prices for new cars. Hyundai Motor said last week that it would not increase the retail price suggested by the car manufacturer Hyundai and Genesis until June 2.
Of course, resellers can increase prices even if an automaker commites not to do so. This happened a lot during the pandemic, when the offer of new vehicles was limited by the scarcity of computer chips and other parts.
Resellers and automakers have reported quick sales in recent days, as people have ran to buy vehicles before tariffs came into force. The average time that a vehicle passed in the parking lot fell from 77 days in late January to less than 50 days in early April, according to bugs.
Another tariff shock will come on May 3, when the Trump government will apply auto parts rates. This means that even cars manufactured in the United States will be affected because virtually all vehicles contain components from abroad. Repairs will also be more expensive.
“The public is definitely making some movements to anticipate tariffs, which I find intelligent,” said Hogan.
But the long -term impact of Trump’s trade policies is still impossible to predict, he said. “This government moves very fast and you really don’t know what will happen next,” Hogan added. “Tighten the belt.”
This article was originally published in The New York Times.
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