With all the threats of tariffs bouncing back and forth across oceans, one big-ticket item is bearing the brunt of the bluster: cars.
President Donald Trump lobbed his latest shot against imported autos last month, threatening a 20 percent tariff on those from the European Union. It comes in the midst of a Commerce Department investigation into whether all vehicles coming into the United States pose a national security threat, which could be used justify a tariff.
“For consumers, there would be no benefit,” said Ivan Drury, senior manager of industry analysis at Edmunds, an online auto research guide.
“If you artificially inflate the price of some cars to be uncompetitive, you give the lower-priced cars a buffer to raise their prices,” Drury said. “At the end of the day, it would just mean higher prices for everyone.”
Automakers and business groups have sounded the alarm that tariffs would wreak havoc on the industry.
"Tariffs will lead to increased producer costs, increased produced costs will lead to increased vehicle costs, increased vehicle costs will lead to fewer sales and less tax receipts, fewer sales will lead to fewer jobs, and those fewer jobs will significantly impact many communities and families across the country," the Alliance of Automobile Manufacturers said in a statement Wednesday.
Trump’s latest auto tariff threat came on the heels of the European Union imposing its own 25 percent duty on $3.2 billion worth of imported American goods. The EU’s action was in retaliation for new U.S. tariffs on steel and aluminum that went into effect June 1.
As it stands, it’s uncertain whether any of the threatened auto tariffs could become reality or are simply negotiating tactics by the president. However, the auto-related national security probe was initiated using the same part of the law that Trump used for the new tariffs on steel and aluminum.
If new duties on foreign-made autos were to be imposed, car buyers would see prices rise fairly quickly.
"There isn't more than about 60 days of inventory at dealerships, so it wouldn't take more than a month or two to affect consumers," said Jeff Schuster, president of Americas Operation and Global Vehicle Forecasting for researcher LMC Automotive.
The breadth of an auto tariff would initially dictate what segments of car sales are affected. For instance, if Trump followed through on his threat specifically against the EU, it would largely affect luxury brands that ship from Europe, such as Mercedes-Benz and Audi, Drury said.
Exactly how much prices would rise would depend on whether automakers pass on the full increase to U.S. buyers.
For illustration purposes: If a full 20 percent tariff against EU imports were passed on to consumers, the starting price of a 2018 Mercedes SL Roadster would jump by $17,640 to $105,840 from its current $88,200.
Meanwhile, if the tariff were imposed on all imports regardless of country of origin — which could come about from the Commerce Department evaluation — a broader swath of the market would be affected.
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LMC Automative's Schuster estimates about 8 million imported cars would be hit in that scenario. About 17.5 million cars were sold in the United States last year.
The average price of a new car is about $34,600, according to Edmunds data. Again for illustration purposes: If an import cost that amount, a 20 percent increase would translate into an extra $6,920, for a total of $41,520.
“If you add that kind of increase, you’d be looking at consumers replacing a substantial number of those vehicle purchases with used cars, or they’ll delay their purchase,” Schuster said.
Some foreign automakers manufacture various brands in the United States. Those cars would not be subject to tariffs.
The cost of buying a car
| Loan aspect | March 2018 | March 2013 |
|---|---|---|
| Average length (in months) | 69.5 | 65.7 |
| Average monthly payment | $525 | $455 |
| Average amount financed | $31,020 | $26,533 |
| Average interest rate | 5.70% | 4.40% |
| Total finance charges | $5,474 | $3,372 |
| Total cost | $36,494 | $29,905 |
At the same time, interest rates are rising, which already is making the cost of borrowing more expensive. The average rate paid on a five-year loan for a new car is 4.78 percent, according to Bankrate.
Consumers also have been stretching their loan terms to accommodate higher prices, with the average length of a car loan at 69.5 months, recent data from Edmunds show. That’s up from 65.7 months in 2013.