Should the White House follow through with threats of a 25% tariff on imported cars and auto parts, it could raise new-car prices as much as $7,000 — or $120 per month for a loan, according to the Center for Automotive Research.
“Believe me, people leave dealerships because of a $5 difference [in a monthly payment] — $120 is a huge difference,” Steve Gates, dealer principal for Gates Auto Family in Richmond Ky., said during a Senate Finance Committee hearing.
Industry experts met before the committee today to discuss the impact a 25% tariff on imported vehicles, and auto parts would have on manufacturers, the supply chain, and consumers as the White House ramps up its trade war with China.
“If a 25% tax is levied on imported vehicles and parts, it won’t matter how good of a car dealer I am, people can’t or won’t buy cars,” Gates said. “They will just be too expensive.”
Not only would the cost of new cars rise, but because many consumers would be pushed out of the new-car space the demand for used vehicles would increase as well, he noted. Additionally, the cost of repairs on used vehicles would rise costing U.S. households an additional $700 per year, according to the Auto Care Association.
“Affordability concerns are not new to our industry,” Gates said. “Over the past 20 years, the average cost of a car has risen 35% while household income has grown only 3%.”
Still, there’s reason to believe the impact wouldn’t be that dire for consumers. The Center for Automotive Research suggests the average vehicle price would increase by $4,400, noted Claire McCaskill (D-MO), and OEMs don’t necessarily have to pass that price onto the consumer.
“The idea that every penny of increase gets passed on to the consumer is overstated at times,” said Josh Nassar, legislative director for the United Auto Workers. “We’re talking about companies that have very healthy profitability and pay their executives quite handsomely.”
If the 25% tariff goes through, it will increase the total value of goods subject to import taxes from $285 billion to $645 billion, according to the Washington Post. It’s believed that President Donald Trump is using the possibility of auto tariffs as leverage in talks with Canada to renegotiate the North American Free Trade Agreement.