Commentary & Voices
Section 232 Hearings on Imported Automobiles and Automobile Parts
Wednesday July 18, 2018
Tomorrow in Washington D.C., the U.S. Department of Commerce is scheduled to hold public hearings as part of their Section 232 investigation into the effects of imported automobiles and automobile parts. A range of witnesses from across the automotive industry are expected to testify.
With a backdrop of trade and tariff discussions in the news, the team at Cox Automotive surveyed automobile dealers across the country and found that 8-in-10 franchised dealers are at least somewhat concerned about the impact of tariffs. The document attached below provides details of our findings.
Our team of economists are weighing in as well with the following commentary.
Jonathan Smoke, Chief Economist for Cox Automotive:
It’s hard to imagine a scenario in which higher vehicle tariffs would have a positive impact on the economy, automakers or the American consumer. The market has enjoyed a decade of expansion and growth, but we are now reaching the end of the cycle when volumes naturally slow. New tariffs, or an all-out trade war, would drastically speed the decline. Tariffs on imported cars would not just hurt the luxury market as many might mistakenly assume. Indeed, luxury vehicles are majority imported, but so are the most affordable and popular vehicles like crossovers and compact cars. The impact on the most affordable vehicles will hurt lower-income, subprime buyers the most. Looking across nearly 14 million approved new vehicle finance credit applications over the past two years on our Dealertrack platform, we found that the most popular vehicles for subprime borrowers are low-priced, imported vehicles. Tariffs would likely put those vehicles out of reach, driving buyers out of the new-car market and negatively impacting consumers, automakers and dealers.
Note that while 47 percent of vehicles sold over the last year were manufactured outside of the United States, Vans are the only major vehicle segment that match the import average. Every other segment is either decidedly import (compact car, CUV, Luxury) or decidedly domestic (mid-size cars, pickups, and SUVs). If the end game is to protect American industry, buyers and dealers alike will have problems sourcing more affordable vehicles. If the end game is to eliminate tariffs on US exports and create a world with no tariffs where we have tariffs today (e.g., ‘the chicken tax’ on pickup trucks), the Detroit three may see margins threatened. The industry’s very complex supply chain will eventually evolve, as it always does, but there is no question that retaliatory tariffs would have a negative impact on both sales and profitability in the short- and medium-term.”
Charlie Chesbrough, Senior Economist for Cox Automotive:
“While the intent of forcing companies to build more vehicles and parts in the U.S. is admirable, it’s inefficient and unworkable for the U.S. to make each of the tens of thousands of parts required to produce a car. Trade is an inevitable part of this global business. The U.S. can’t currently match Asia/China on technology manufacturing costs, which are an increasing important part of any vehicle. If Trump is successful in getting the tariffs implemented, the result will be a far less efficient supply chain, resulting in more expensive vehicles and lower sales volume – a smaller vehicle market with fewer jobs. The impact will be felt across the automotive industry in the U.S. – suppliers, OEMs, dealerships, financing firms. The only potential “winner” over the near-term may be the used-vehicle market, which obviously would not be subject to any tariffs.”
If you would like to speak to any of our experts and analysts, feel free to contact us.