AUTONEWS

Breaking: Auto Import Tariffs To Go Into Effect

A 25% import tariff on imported autos and parts will go into effect, April 2, Pres. Donald Trump said Wednesday during an Oval Office news conference. The levy will apply to vehicles coming into the United States from other nations, including those from brands based in this country, shipping in vehicles assembled elsewhere.

“Anyone who has plants in the U.S., it’s good for,” Trump told reporters.

At an earlier White House event in honor of Women’s History Month, Trump previewed his formal announcement.

“We’re going to go with the tariffs and cars,” Trump told the gathering. “And as you’ve probably been reading, it’s all over the place. You’ve been reading and seeing and watching car companies and every other form of company, they’re pouring back into our country at levels never seen before. We're up to, I guess, to $5 trillion of investments already, and there's never been that much for a year. We did that in a period of six weeks has never been any numbers like that, we've never seen they're all coming, they're all coming in so they don't have to pay tariffs, it's very simple, because if you build your product in the USA, there is no tariff.”

The move was immediately hailed by UAW president Shawn Fain who views import tariffs as a means of protecting U.S. union workers.

“We applaud the Trump administration for stepping up to end the free trade disaster that has devastated working class communities for decades,” Fain said in a statement. "Ending the race to the bottom in the auto industry starts with fixing our broken trade deals, and the Trump administration has made history with today’s actions.”

Earlier Wednesday during a webcast on auto industry market conditions, economists at Cox Automotive laid out possible consequences if the tariffs imposed on imported vehicles.

“It looks like we are headed for the highest effective tariff rate since World War II for the auto market,” predicted Cox Automotive chief economist Jonathan Smoke. “That is especially problematic as such, tariffs would be highly disruptive to North American vehicle production, resulting in tighter supply, higher prices and lower production and sales.”

For one, the tariffs on would cause a $3,000 price hike on U.S.- made vehicle and $6,000 or more on a typical vehicle assembled in Canada or Mexico,” said Smoke.

“If the tariffs go through this time, by mid-April, we expect disruption to virtually all North American vehicle production, amounting to 20,000 fewer vehicles produced per day, which is about a 30% hit to production over the longer term,” estimated Smoke. “We expect sales to fall, new and used prices to increase, and some models to be eliminated if those tariffs persist.”

The prospect of tariffs had already affected the market, according to a report released Wednesday by J.D. Power, predicting nervous shoppers swarmed to dealer lots this month to avoid higher prices, resulting in an expected 13% increase in sales over March, 2024.

“In addition to the boost in March sales, anticipated increases in manufacturer and dealer discounts have not materialized, even as inventory on dealer lots rises,” said Thomas King, president of the data and analytics division at J.D. Power. “Although the magnitude of these effects is currently modest, they do present a preview of potential disruption as manufacturers, dealers and consumers prepare for uncertainty in the coming weeks and months.”

Uncertainty over whether or not the 25% tariffs on vehicles that do not meet the standards under the U.S. Mexico Canada Agreement, or USMCA, will be imposed is basically killed momentum in what has so far shaped up to be a strong start to 2025.

“If the market were left alone with no massive tariff impact on automotive, we'd expect sales to see a one to 2% gain over last year, and finish near 16.3 million. That was our view just a few weeks ago,” said Cox Automotive senior economist Charlie Chesbrough, during Wednesday’s presentation. “However, what seems most likely now is some tariffs for some countries for some period of time. So we've revised our baseline forecast of 15.6 million down one to 2% from last year.”

Further eroding prospects is Smoke’s conjecture, compliance with USMC won’t immunize imports if the tariffs are triggered on April 2.

“It would appear about 8% of vehicles are not compliant, because 92% are duty free, and that would imply that most of them meeting the rules,” Smoke pointed out. “So we think what is really changing next Wednesday will be, effectively, even vehicles that are in compliance are now subject to the 25% tariff.”

As alluded to by Thomas King at J.D. Power, automakers are reining in incentives as consumers rush to beat any price increases before the tariffs would take hold.

It’s all adding up to what Cox Automotive’s Chesbrough termed a “perfect storm for a return to inflation” created by higher values for existing inventories, incentives in decline and potential supply disruptions, noting “it may already be happening.”

For electric vehicles, the outlook is becoming murkier given the segment is not only threatened by tariffs, but by Trump’s stated intentions to kill tax credits for EV purchases and funding for a national charging network.

Cox is estimating EV sales for the first quarter will increase 12% over the first three months of 2024, despite an expected 18% falloff from the torrid sales at the end of last year fueled by discounts and incentives, but the twin uncertainties are creating a more “complicated” scenario, according to Stephanie Valdez Streaty, director of industry insights at Cox.

While EV sales in general are increasing, market leader Tesla has been steadily losing ground.

“The rapid pace of technological advancements and the emergence of new competitors are outpacing Tesla's ability to maintain its early lead,” said Streaty.

The company's share of the EV market peaked in 2020 at 79% and has been declining since then to about 55% last year, according to Streaty. She also cited opposition to Tesla CEO Elon Musk politically and personally as an additional factor for the brand’s sales ebb.

That’s reflected in a sharp decline in customer consideration of the brand. Citing Kelly Blue Book data, Streaty noted consideration of Tesla among luxury EV buyers fell from 16% in 2021 to 9% in 2024.

What was uncertainty on whether or not Trump would spare the auto industry from import tariffs now is all but a fait accompli.

The late Tom Petty sang, “the waiting is the hardest part” but for the auto industry, what comes next, may be the hardest yet.

Ed Garsten(https://www.twitter.com/EdGarsten)