Tariffs could raise car prices, spur layoffs
Economist: 'Biggest tax increase' in US history
By: Jamie L. LaReau
Detroit Free Press
USA Today Network
DETROIT - President Donald Trump;s proposed 25% tariffs on imports from Mexico and Canada and 10% on goods from china would likely raise the average price for a new car and could lead to massive layoffs - but by how much depends on how long the tariffs remain in place.
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The tariffs are in flux, with Trump on Monday [02/02/2025] agreeing a 30-day pause for both Mexico and Canada as negotiations kick off.
..... Assessing the tariff proposal, analysts estimate new care prices, on average, would likely increase by anywhere from $1,000 to $9,000 or m,ore. Some vehicles would be affected more than others. They also estimate that more than 165,000 autoworkers could be laid off if tariffs in remain in place for any considerable time.
..... If Trump enacts tariffs, the timeline for price hikes and job cuts could vary to within a few weeks or months, depending on the vehicle and the inventory that is in stock, said Sam Abuelsamid, vice president of Market Research at Telemetry Insights.
..... That's because tariffs - the taxes on goods that cross international borders - do not get applied until the products actually cross the border.
..... "Anything that is in inventory as of today [02/03/2025] isn't affected. Everything that crosses the border form tomorrow [02/04/2025] on gets a tariff," Abuelsamid said. "Price changes will vary based on the models, with more popular models that have lower inventories being hit the soonest."
..... For example, Toyota has tight inventory of the Rav4 SUV, and Honda has short supply of CR-Vs and Civics, he said. All three vehicles are assembled in Canada, and they probably would see an impact form tariffs within a few weeks. The Jeep Compass, made by Stellantis, is built in Mexico. It might take a bit longer for it to be affected because Stellantis has a good supply of inventory on the Compass, Abuelsamid said.
..... Put simply by economist Michael Hicks, who spoke to the Detroit Free Press on Monday [02/03/2025] before Trump agreed to the pause, "This is the one-time biggest tax increase on America in history. so it predictably has the effect of dampening economic activity. the people affected most will be the people who are renting, people who need to buy cars, people who need to buy computers."
..... Hicks, a professor at Ball State University in Muncie, Indiana, estimates the proposed tariffs would amount to a 42,000 tax on average household spending.
..... Trump has said the new tax is needed to mitigate an influx of immigration and fentanyl trafficking over the U.S. borders. Canada moved to retaliate by imposing its own tariffs on U.S. imports, and China and Mexico have said they also would respond. Both Canada and Mexico agree to new border security and anti-fentanyl measures in calls with Trump on Monday. [02/03/2025]
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Mexico President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau each agreed to deploy 10,000 troops to their U.S. borders to fight illegal mitigation and drugs.
..... Aron d90% of auto exports form both Mexico and Canada go to the U.S., according to the Mexican Automotive Manufacturers' Association and the Canadian Vehicle Manufacturers' Association.
..... As of Monday [01/03/2025] morning, Ford Motor Company, General Motors and Stellantis did not provide new comments about the pending tariffs plans. All ahd said previously, in some fashion htat they believed Trump shares their goal of a strong U.S. auto industry and that they could make some, adjustments to their manufacturing.
..... Asked to comment, Stellantis deferred to the American Automotive Policy Council, Former Missouri Governor Matt Blunt, president of the council, said last month [01/2025] that cars and parts that meet the United States-Mexico-Canada Agreement's rules of origin should be exempt from any new tariffs.
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"If these tariffs are imposed, all vehicles and parts that comply with current USMCA trade agreement rules should be exempt, as they meet the strict standards originally negotiated by President Trump to support jobs and investment in the United States," Blunt said.
..... But the impact form tariffs, if imposed, could be quick, said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions LLC.
..... "Just-in-time supply of parts could hamper production quickly," Fiorani said Monday. [02/03/2025]
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Abuelsamid said Monday [02/03/2025] that if tariffs are imposed and say in place for the entire year, he projects a loss of 2 million vehicle sales in North America for 2025, with the exact impact varying based on model and inventory. About 200,000 of those sales will be lost in Canada, the rest in the U.S.
..... According to Kelly Blue Book, the average transaction price for a new care in December [2024] was $49,740. Abuelsamid predicts the tariff increases would be pact the wholesale price on a vehicle by 18% to 20%, which then will translate to a "20-sish-%" increase in the price to a consumer. that means on a $49,000 car today, [02/03/2025] the price
could go up by $9,800 or more, he said.
..... Other see a lesser impact.
..... Dan Ives, global head of technology research and senior equity analyst at Wedbush Securities said a Monday [02/03/2025] research note, "while GM, Ford and Stellantis are heavily tied to much production in these countries, we believe the supply chain can adjust to a near-term shock and weather the storm."
..... Ives said if tariffs stay in place for 30 to 60 days, it should have minimal impact on GM and Ford. But if tariffs last longer than 90 days, he forecasts the average transaction price on a new vehicle could rise by $1,000 to $2,000.
..... In the U.S., 15.9 million new vehicles were sold in 2024. If tariffs erode those sales by about 2 million vehicles, Abuelsamid would expect to see 15% to 20% of all U.S. autoworkers laid off. According to the U.S. Bureau of Labor Statistics, there were about 1.1 million motor vehicle and parts manufacturing jobs as of December. [2204] That means 165,000 or more people could lost their jobs.
.... If Trump enact the tariffs, the economic impact will resonate from the auto industry across the economy to grocery prices and even housing prices given that much of the softwood lumber used in framing new houses comes form Canada, Abuuelsamid said.
..... "It's going to be really, really bad for the U.S. economy," Abuelsamid said. "We're going to have a major recession here in the United States if this continues."