What Dealers Can Expect if Trade Wars Expand to the Auto Industry

Citing national security concerns, the White House is investigating the possibility of imposing tariffs on imported automobiles and automotive parts in an effort to revitalize domestic auto production. Moody’s Analytics estimates that (assuming trade partners do not retaliate) a 25% tariff would add 23,000 jobs to the economy and boost U.S. production by 300,000 vehicles. However, dealers and consumers would likely experience higher costs for import cars, which currently make up 44% of sales.  As a result, Moody’s expects total vehicle sales in the U.S. to decrease by 160,000.

This announcement comes on the heels of tariffs on imported steel and aluminum which are expected to increase U.S. automotive manufacturing costs and have caused U.S. carmakers, parts suppliers, and dealers to express concerns. Globally, large trade partners such as Canada, Mexico, China, India, Russia, Japan, and the European Union have already disputed the national security basis for the steel and aluminum tariffs. Several of those countries have filed complaints with the World Trade Organization and are expected to retaliate with tariffs on U.S. exports.

For the time being, this is only an investigation, and M&S will continue to monitor the situation as it develops. However, taken together, these economic policies would likely raise the price of both domestic and imported cars. With auto finance figures seeing the lowest growth since the first quarter of 2012, the prospect of additional net reductions in sales is troubling for the industry.