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DETROIT — The automotive sector faces significant global repercussions as President Donald Trump’s 25% tariffs on imported vehicles remain in effect, despite recent easing of levies on other nations. Industry analysts predict substantial worldwide consequences for automakers due to these trade policies.
Projected Impacts of Vehicle Tariffs
Significant Sales Decline and Price Hikes
Research from Wall Street and automotive experts anticipates a multi-million unit decrease in global vehicle sales, coupled with escalated prices for both new and pre-owned vehicles. The total financial burden on the automotive industry is estimated to exceed $100 billion.
“Structural Shift” in Auto Industry
Felix Stellmaszek, global head of automotive and mobility at Boston Consulting Group, stated to CNBC that current events signal a “structural shift, policy-driven, that’s likely to be enduring.” He emphasized, “This year could be the most pivotal for the auto industry in history — not just due to immediate financial strains, but because it’s necessitating fundamental changes in production methodologies and geographical strategies.”
BCG Analysis: Billions in Added Costs
Boston Consulting Group (BCG) forecasts that tariffs could impose an additional $110 billion to $160 billion in annual expenses on the automotive industry. This cost surge may affect 20% of the U.S. new-vehicle market’s revenue, inflating production costs for both domestic and international manufacturers.
CAR Study: U.S. Automaker Costs to Rise Sharply
The Center for Automotive Research (CAR), a non-profit think tank based in Michigan, projects that U.S. automakers alone will face increased costs of $107.7 billion. This sum includes $41.9 billion for the Detroit Big Three: General Motors, Ford Motor, and Stellantis.
Tariffs on Vehicles and Auto Parts
Both BCG’s and CAR’s analyses consider the 25% tariffs on imported vehicles, implemented by the previous administration, and impending tariffs of the same magnitude on automotive components, scheduled to take effect soon.
Strategies and Consumer Response
Cost Burden and Potential Sales Reduction
While automakers and suppliers might absorb some of the increased costs, analysts expect a significant portion to be passed on to American consumers. This price increase could potentially dampen sales.
Goldman Sachs: Consumer Price Impact
Mark Delaney, an analyst at Goldman Sachs, noted in a recent investor briefing that “proposed tariffs will likely elevate the cost of both importing and producing vehicles in the U.S. by at least a low to mid-single-digit thousand dollar range on average.” He added, “We anticipate that the auto industry will face challenges in fully transferring these costs, especially amid general softening consumer demand.”
Projected Vehicle Price Increases
Goldman Sachs projects that average new vehicle prices in the U.S. will increase by approximately $2,000 to $4,000 within the next 6 to 12 months to reflect tariff-related expenses.
Automaker Reactions and Consumer Sentiment
Automakers have reacted to the tariffs in diverse ways. Predominantly domestic manufacturers, such as Ford and Stellantis, have introduced temporary employee pricing incentives. Conversely, Jaguar Land Rover, a British automaker, has halted shipments to the U.S. Hyundai Motor has announced it will freeze price increases for at least two months to alleviate consumer anxieties.
Consumer Confidence Dips
A University of Michigan survey revealed that consumer sentiment in April deteriorated beyond expectations, with anticipated inflation reaching levels not seen since 1981.
Inventory and Future Price Adjustments
Sam Abuelsamid, vice president of insights at automotive consulting firm Telemetry, suggests that many automakers possess roughly a two-month supply of vehicles unaffected by tariffs. They will likely aim to deplete this inventory before adjusting prices upwards due to the tariffs.
Wider Economic Implications
Sales Decline and Economic Ripple Effects
Telemetry anticipates that increased expenses for production, parts, and other elements will lead to a reduction of up to 2 million vehicles sold annually in the U.S. and Canada. This sales downturn is expected to create broader economic repercussions.
Impact on Consumer Spending
“A sales reduction of a couple million units will have extensive economic consequences,” Abuelsamid cautioned. “This is driven by elevated prices, not only for vehicles but across various sectors… which will constrain consumer purchasing power.”
Vehicle Affordability Challenges
Vehicle affordability has been an ongoing issue for several years. Cox Automotive data indicates that the average price of a new vehicle is nearly $50,000, excluding financing costs, which have significantly increased recently to combat inflation.
High Auto Loan Rates
Auto loan interest rates are currently near decade highs, exceeding 9.64% for new vehicles and almost 15% for used cars and trucks, according to Cox Automotive.
Long-Term Market Outlook
Jonathan Smoke, chief economist at Cox Automotive, stated during a recent online event, “We anticipate reduced discounting followed by accelerated price increases as tariffs take effect and supply tightens, causing price increases across most new vehicle categories.” He further projected, “In the long run, we foresee decreased production and sales, higher prices for used vehicles, and the discontinuation of certain models.”
Estimated Price Increases by Vehicle Type
Projected price increases vary by vehicle type. However, Cox Automotive estimates a $6,000 increase for imported vehicles due to the 25% tariff on vehicles assembled outside the U.S., and a $3,600 increase for domestically assembled vehicles due to forthcoming 25% tariffs on auto parts. These increases are in addition to prior price hikes of $300 to $500 resulting from tariffs on steel and aluminum.