Autoworkers at Nissan’s Smyrna Vehicle Assembly Plant in Tennessee, June 6, 2022. The plant employs more than 7,000 people and produces a variety of vehicles, including the Leaf EV and Rogue crossover.
Michael Wayland / CNBC
DETROIT — As President Donald Trump‘s 25% tariffs on imported vehicles remain in effect despite a pullback this week on other country-based levies, analysts are expecting massive global implications for the automotive industry due to the policies.
They’re expecting to see a drop in vehicle sales in the millions, higher new and used vehicle prices, and increased costs of more than $100 billion for the industry, according to research reports from Wall Street and automotive analysts.
“What we’re seeing now is a structural shift, driven by policy, that’s likely to be long-lasting,” Felix Stellmaszek, Boston Consulting Group’s global lead of automotive and mobility, told CNBC. “This may well be the most consequential year for the auto industry in history – not just because of immediate cost pressures, but because it’s forcing fundamental change in how and where the industry builds.”
BCG expects tariffs to add $110 billion to $160 billion on an annual run rate basis in costs to the industry, which could impact 20% of U.S. new-vehicle market revenues, increasing production costs for both U.S. and non-U.S. manufacturers.
The Center for Automotive Research, a Michigan-based nonprofit think tank, believes costs for automakers in the U.S. alone will increase by $107.7 billion. That includes $41.9 billion for Detroit automakers General Motors, Ford Motor and Chrysler parent Stellantis.
Both analyses take into account the 25% tariffs on imported vehicles implemented by Trump on April 3 as well as forthcoming levies of the same amount on automotive parts that are set to begin by May 3.
Auto stocks
Automakers and suppliers may be able to bear some of the cost increases, but they’re also expected to pass them along to U.S. consumers, which could in turn lower sales, according to analysts.
“We believe the tariffs as proposed will raise the cost of both importing and manufacturing vehicles in the US by at least a low to mid single digit thousand dollar level on average, and we believe it will be hard for the auto industry to fully pass this on, especially with softening consumer demand more generally,” Goldman Sachs analyst Mark Delaney said in a Thursday investor note.
Goldman Sachs assumes new vehicle net prices in the U.S. will rise by roughly $2,000 to $4,000 over the next six- to 12-month timeframe to better reflect tariff costs.
Automakers have responded to the tariffs in a variety of ways. Manufacturers that are mostly domestic, such as Ford and Stellantis, have announced temporary deals for employee pricing, while others, such as British carmaker Jaguar Land Rover, have ceased U.S. shipments. Hyundai Motor also has said it would not raise prices for at least two months to ease consumer concerns.
Consumer sentiment grew even worse than anticipated in April as the expected inflation level hit its highest since 1981, a closely watched University of Michigan survey showed Friday.
Sam Abuelsamid, vice president of insights at auto advisory firm Telemetry, expects many automakers have at least a roughly two-month supply of non-tariff impacted vehicles that they will be able to sell down before needing to increase prices due to tariffs.
Telemetry expects the higher costs for production, parts and other factors to result in upward of 2 million fewer vehicles sold annually in the U.S. and Canada, which will have ripple effects on the broader economy.
“A couple million-unit reduction in sales will have a broad impact economically,” Abuelsamid said. “That’s driven by higher prices, not just for vehicles, but across the board … which is going to limit people’s’ spending power.”
Affordability of new and used vehicles has been a problem for several years. On average, Cox Automotive reports new vehicles cost nearly $50,000. That figure doesn’t include the cost of financing such a vehicle, which has risen significantly in recent years in an attempt to combat inflation.
Auto loan rates remain near decades-high levels of more than 9.64% for a new vehicle and nearly 15% for a used car or truck, according to Cox.
“We expect to see declining discounting and then accelerated price increases as the tariffs are passed through and supply tightens, leading to price increases on all types of most new vehicles,” Cox Automotive Chief Economist Jonathan Smoke said during a virtual event Monday. “Over the longer term, we expect production and sales to fall, newly used prices to increase, and some models to be eliminated.”
Expected price increases vary based on vehicle, but Cox estimates a $6,000 increase to the cost of imported vehicles due to the 25% tariff on non-U.S. assembled vehicles, as well as a $3,600 increase to vehicles assembled in the U.S. due to upcoming 25% tariffs on automotive parts. Those are in addition to $300 to $500 increases as a result of previously announced tariffs on steel and aluminum.
Content Source: www.cnbc.com