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Smoke on Cars

So Close: More Uncertainty is the only Certainty in the Ongoing Auto Tariff Discussions


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The White House today in a statement confirmed that it will delay by up to six months any decision on Section 232 tariffs on autos and auto parts. This is exactly the route we expected, as the Trump Administration uses the threat of high tariffs as a preferred tool for leverage. How this journey ends is still unknown, but at this point, here are five points we believe to be true:

  1. We continue to believe the aim of the White House is to get new trade deals with Europe, Japan and China. Postponing any decisions on Section 232 auto tariffs buys valuable time. The auto negotiations will be focused on Europe and Japan. Imports from the EU account for 8% of new vehicle sales; Japan imports account for 11%. Only Mexico is bigger than Japan in terms of assembled vehicles imported to the U.S. This is most significant for luxury, as over half of luxury imports come from Europe and Japan.
  2. We believe the general lack of details and ongoing delays in the process continues to be a major frustration to the industry and the markets. A delay of up to 180 days only prolongs lingering uncertainty that’s been hanging over the industry for almost a year. It is hurting long-term planning and investment decisions at a critical time in the auto industry, as longer-term disruptive threats mount.
  3. We believe the ultimate goal of the current administration is to limit or restrict auto and auto part imports, with the goal of reversing declines in U.S. production. This direction will have the most impact on crossovers, compact cars and luxury vehicles in the short term, likely leading to lower inventories and higher prices.
  4. Long term, we believe strict limits on imports could lead to more production in North America. And, with caps on volumes in the new USMCA agreement, it is likely that any new investments in North America would come to the U.S. That is assuming USMCA is ratified by the U.S, Mexico and Canada. The Administration recently eliminated tariffs on steel and aluminum from Canada and Mexico, which should help negotiations. Still, ratification is not guaranteed, based on the U.S. political landscape.
  5. The only certainty we see in the delay on Section 232 auto tariffs is that, in the short-term, the market will not repeat last summer’s surge in demand that led to stronger pricing and outright appreciation of used-car values. Instead, we now expect a traditional summer of slowing demand relative to the stronger spring season and, along with it, more predictable price depreciation in the used-car market.

Auto tariffs is a key issue our Industry Insights team will continue to monitor, as we believe any decision that leads to higher vehicle prices will further slow an already slowing market. The White House has already placed higher tariffs on many Chinese imports, placing more pressure on all American households. And Chinese counter-tariffs will impact our economy as well. By the fall of this year, the cumulative impact of higher costs could slow consumer spending and make it more difficult for the Administration to find any support for additional “taxes” on imported vehicles and parts.

Note: The title of this piece is a reference to a song I’ve been listening to lately by NOTD & Felix Jaehn. “So Close” is a song about the struggles of being in a relationship with someone who has a lack of commitment.  Listen to it here.

The chorus:

Yeah, we got so close, so close to love

But you had to go and mess it up

Was it all too much or just not enough?

When we got so close, so close to love

Apparently, the volume of luxury, CUVs and compact cars are just too much for the Administration to mess with.



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