Automakers could be “shocked” with the loss of 2 million annual vehicle sales if President Donald Trump raises U.S. duties to 25% on all imports of automobiles and auto parts, Cody Lusk, chief executive of American International Automobile Dealers Association, told Auto Finance News.
The projected loss figures from LMC Automotive assume companies will pass the full 25% cost onto consumers, but Jeff Schuster, senior vice president of forecasting, expects that automakers will absorb at least half the cost.
Additionally, manufacturers may try to “sweeten their finance arrangements,” said Gary Clyde Hufbauer, senior fellow for Peter Institute for International Economics (PIIE). Certain banks may reconsider participation in the auto sector because margins are already so thin, a move that would particularly impact independent dealers who can’t rely on captives for financing. “It’s going to send a shock throughout the system,” Lusk said.
Ally Financial Inc., for one, is monitoring the situation to determine the potential impact to its business and to its dealer customers. “Ally’s concern centers on what the proposed tariff increases on imported vehicles and parts may mean to consumers and dealers,” Ally told AFN in a statement.
The proposed 25% tariff would be a jump above the current 2.5% rate on imported cars and the 0% rate on trucks from Canada and Mexico, affecting more than $200 billion of U.S. imports. Were the tariffs to be enacted, PIIE estimates production will fall 1.5% and will cause 195,000 auto workers to lose their jobs in a one- to three-year basis period.