MNI INTERVIEW: Tariffs Would Hit Automakers, Raise Prices-S&P
MNI (DETROIT) - Permanent 25% tariffs on Mexican and Canadian imports could see annual U.S. auto sales plunge 10% for several years and result in higher prices for consumers as well as a loss of jobs and competitiveness, S&P Global Mobility analyst Stephanie Brinley told MNI.
"There's so much unpredictability. The 10% tariff on China was implemented with no metric for pulling it back," she said in an interview on the sidelines of an automotive conference sponsored by the Chicago Fed. "The chicken tax – the 25% tariff on imported pickup trucks – has been around since the '60s, so certainly tariffs can be put in place and never taken away."
If North American tariffs last just a few weeks – a scenario she considers the most likely – automakers will likely pull back production on specific products and cancel price incentives, Brinley said. "You'd see a lot of 'sit tight' from automakers. For consumers, the incentives come close to a dead stop, depending on the vehicle."
The Trump administration announced tariffs of 25% on Canada and Mexico last Saturday but put them on hold for 30 days after the United States' largest trading partners agreed to step up enforcement efforts at the border. But the threat of high tariffs is likely to hang around, exposing the fragility of a supply chain built on the cooperation of the three governments, Brinley said. (See: MNI INTERVIEW: Lots More Coming On Trump Tariffs - Eissenstat)
PASS-THROUGH CALCULUS
An S&P Mobility analysis predicts a 25% duty on the average USD25,000 landed cost of a vehicle from Mexico and Canada would add USD6,250 the sale price -- and importers are likely to pass most, if not all, of this increase to consumers. Cost containment has already been a top issue for automakers over the past five years as the industry transitions from internal combustion engine vehicles to battery electric vehicles, Brinley said.
Prices of U.S. made-vehicles will also rise according to the proportion of components imported from China, Mexico or Canada in each model, but it will also depend on which models manufacturers will continue producing -- ones that can be made faster and are most shielded from tariffs.
"Suppliers give up some, (manufacturers) give up some. I don’t think it’ll be that a Rav4 costs 25% more than it did last month because consumers can’t absorb that either," she said.
Still, unless the tariffs are permanent, automakers aren't likely to make substantive changes to their manufacturing footprint, Brinley said.
"Changes to resourcing are expensive and difficult. Even if you decide to do it, some of that wouldn't happen until 2028, 2029," she said. "We’re three countries but behave as one group. Sourcing is so intertwined, you’re dismantling a system. China was already gradual and we’ve known that’s happening. This reverses 40 years of economic development for the region as a whole."