The North American vehicle market is built on free trade, and recent tariffs would undoubtedly throw a wrench into the works.
Because the tariff story evolves, the chapter written earlier this week was excellent news for the auto industry. Massive 25% tariffs weren’t implemented against goods from Canada and Mexico, no less than not yet.
That is nice news for everybody involved, as there’s little doubt that 25% tariffs across North America would upend the U.S. auto market and the larger economy.
The North American auto market is an enormous, three-nation web of suppliers and production hubs that has been 30 years within the making, an idea first floated by President Reagan and at last enacted by President Clinton. It’s an operation built on free trade, and recent tariffs will surely throw a spanner within the works.
While the threat looms, the Cox Automotive team stays confident that compromises will likely be worked out in due time and any tariff pain will likely be the short-lived, not long-term policy adopted by the U.S.
Ultimately, the stakes are too high: Of the 50 best-selling models within the U.S. market, which accounts for about 60% of the market volume, half would be directly affected by the tariffs, and that doesn’t even begin to account for all of the auto parts that move freely across the borders today, ensuring good jobs and high wages throughout North America.
No mainstream automaker will likely be resistant to the pain, which can almost definitely be transferred to buyers through higher prices. The U.S. auto market already has an affordability problem; artificially raising costs will only exacerbate the difficulty.
Worse still, significant tariffs focused on the auto industry will disproportionately impact our market’s most inexpensive vehicles. Our evaluation suggests that 40% of vehicles priced under $40,000 will likely be directly affected. Of the 20 recent vehicles priced under $30,000, 10 will likely be hit hard.
Cox estimates suggest the common tariff on models assembled in Canada or Mexico, or with reported content from those countries, would increase the vehicle cost by $5,855. This amounts to 16.6% of a median new-vehicle price, starting from 3% to 25%. Will transaction prices increase by 16%? It’s hard to say. Not all the prices will likely be passed on to buyers, but one reality is tough to disregard: Prices will go up for suppliers, automakers, and buyers. The impact on “inexpensive” vehicles would likely make lots of them unviable within the U.S. market.
On a trade basis, the Cox team has estimated that 25% tariffs on the border of Canada and Mexico would have impacted $309 billion in trade in 2024, or about 40% of the U.S. recent vehicle market. Our evaluation does not include the impact on parts, which could be high and directly impact auto repair shops across the U.S.
If history is a lesson, the Trump Administration will proceed to threaten tariffs, and lots of countries will reply in kind with their very own tariffs, as China has already demonstrated. Ultimately, higher tariffs will only challenge an industry already wrestling with high costs and small margins in a worldwide automotive business that relies on a big and sophisticated supply chain.
This Article First Appeared At www.automotive-fleet.com
