Bracing for impact: Auto lenders respond to tariff uncertainty

The auto industry is benefiting from short-term sales demand driven in part by looming tariffs, but is bracing for the long-term, unknown impacts of President Donald Trump ’s aggressive trade policies. “The first phase of frenzy in the retail vehicle market has passed,” Jonathan Smoke , chief economist at Cox Automotive , said April 29. “Meanwhile, uncertainty remains acute, especially regarding what will happen with tariffs.” In addition to the 25% aluminum and steel tariffs implemented March 12, the following tariffs are in effect as of April 30: A 25% tariff on all imported cars, implemented April 3; A 10% minimum tariff on nearly all countries, implemented April 5; and A 145% tariff on Chinese imports, implemented April 10. There are more to come, including a 25% tariff on auto parts set to go into effect on May 3 and several reciprocal tariffs that have been suspended but will be active on July 9. [caption id="attachment_58351049" align="alignnone" width="1600"] (Courtesy/Canva)[/caption] However, it’s possible these plans will change. Trump on April 29 issued two executive orders: One exempts automakers who pay the 25% import tariff on cars from also paying the 25% aluminum and steel import tariffs. The second order lets automakers temporarily claim an import adjustment offset for the upcoming May 3 auto parts tariffs. Manufacturers can temporarily claim up to 3.75% of the car’s retail price for a year. In the second year, an exemption will be offered for 2.5% of the car’s retail price. In year three, the offer disappears. The second order only applies to vehicles assembled in the United States. The 3.75% reimbursement comes from a flat assumption that 15% of the average car’s value comes from parts sourced from other countries, as 25% (the auto tariff amount) of 15% equals 3.75%, according to the executive order. However, the average vehicle has more than 30% of its parts from outside the United States, Moody’s Analytics auto economist Michael Brisson told Auto Finance News. “This will not make up the full amount of cost increases even for U.S. producers and does not ease any of the supply concerns that come from increased costs for autos produced outside of the U.S. market,” he said. With no clear sign of how long auto tariffs may last, lenders and OEMs are preparing for an uncertain future. Lenders see Q1 growth, brace for Q2 Many lenders’ auto originations climbed in the first quarter as higher costs from tariffs haven’t yet reached dealer lots, prompting consumers to purchase now, rather than wait. Auto originations rose year over year at Ally Financial , Capital One Auto Finance , Chase Auto , GM Financial , Wells Fargo Auto and Huntington Bank . [caption id="attachment_58331600" align="alignnone" width="1920"] Photographer: Emily Elconin/Bloomberg[/caption] Tim Spence , chief executive and president of lender Fifth Third Bank , said on an April 17 company earnings call that the bank’s partners are waiting to see whether the tariffs stick at their elevated levels or are negotiated down. If they stay, he said, companies will have to increase costs. “Universally, their belief is that the only way they have to respond in the near- to medium-term is to push prices,” he said. Businesses need to know tariffs will stay long-term before taking on any multi-year investments to produce in the United States, Spence said. “Nobody wants to make an investment like that,” Spence said, if businesses aren’t convinced the tariffs are durable. As banks’ auto originations grew, and in response to increased affordability concerns amid rising vehicle prices, credit unions saw an uptick in leasing in the new car market, Chris Harper , director of business development at Credit Union Leasing of America , told AFN . “The new car volume that we’re seeing, percentagewise with our partners, has been overwhelmingly more in the leasing element,” he said. In the short term, credit unions anticipate a post-tariff scenario similar to that following the pandemic, when new vehicle inventories were down and “used car sales filled the void,” Harper said. Through leasing used vehicles now, credit unions hope to gain market footing. “There’s this understanding that [tariff price increases] are going to put [credit unions] into a COVID 2.0, or a mini-COVID buying cycle, which offered them an opportunity to capture market share,” he said. ‘Too early to tell’ Many automotive companies have indicated it’s too soon to project the full tariff impact and have yet to make operational changes directly tied to them. Capital One CEO Richard Fairbank said on an April 22 company earnings call that the bank will keep “a watchful eye with respect to this uncertain economy.” Likewise, regional lender PNC Financial ’s Chief Financial Officer and Executive VP Robert Reilly called the environment “too fluid” for the bank to make substantial changes during an April 15 company earnings call. Other lenders, including Chase Auto, are seeing their corporate clients shift priorities ahead of full tariff impacts, Jeremy Barnum , chief financial officer at JPMorgan Chase , said during an April 11 company earnings call. “We would characterize what we’re hearing from our corporate clients as a little bit of a wait-and-see attitude,” — Jeremy Barnum, JPMorgan Chase. Lenders may be seeing a dip in auto and powersports, but it’s too early to tell conclusively. Vancouver, British Columbia-based fintech Inovatec found a slight decrease in automobile and powersports applications as of April 23, but it is “too early to tell whether this is due to tariffs or seasonal sales activity,” spokesperson Glenn Goldberg told Auto Finance News . Meanwhile, retailers like Asbury Automotive Group and AutoNation said they are waiting for their OEM partners to make moves on the tariffs. How OEMs respond will differ based on the manufacturer, Asbury President and CEO David Hult said on an April 29 company earnings call. While he expects “the first lever” would be for OEMs to “back off on incentives,” it could depend on brand inventories and demand, he said. “It’s going to vary dramatically by brand,” he said. “It’s really too early to tell, and everyone’s trying to navigate what the future holds.” AutoNation CEO Mike Manley , meanwhile, expects manufacturers to hold off on price increases for as long as possible, he said on an April 25 company earnings call. “The last lever any of our OEMs will pull will be one that affects net transaction price,” — Mike Manley, AutoNation. OEMs hold off increasing cost, others halt shipments to U.S. The tariff announcements are prompting automakers to stave off increasing consumer costs — either through incentives on pre-tariff inventory or by pausing shipments entirely. Ford announced April 30 it would delay price increases to see how rivals react. The announcement came weeks before Ford and Stellantis announced April 3 they would offer employee pricing to consumers through June 2 in response to the tariffs. “We are positioned better than most in the industry because we are the most American company,” Ford Vice Chair John Lawler said on an April 16 Bank of America Securities Automotive Summit call. “We assemble more vehicles than anybody else. We have the most hourly workers, and we export the most vehicles from the U.S.” With the tariff announcements came a surge in sales as consumers rushed to buy ahead of expected tariff-induced price hikes. Both Stellantis and General Motors pulled their 2025 forecasts on April 30, and April 29, respectively. GM also put $4 billion in share buybacks on hold until there was more clarity on the impact of the auto tariffs. Production shifts also came: Stellantis temporarily stopped production in Canada and Mexico and temporarily laid off thousands, including 900 union represented employees, April 7, after General Motors announced April 3 it plans to increase production at its Fort Wayne, Ind., assembly plant. Meanwhile, OEMs outside the United States are also weighing the benefits of exporting to the U.S. Audi, Jaguar Land Rover and Mitsubishi have temporarily paused U.S. shipments in response to the tariffs. And manufacturer Mazda announced April 17 it would pause its U.S. production of the CX-50 sport utility vehicles it exports to Canada. Market uncertainty hurts powersports Meanwhile, the powersports market, unlike auto, didn’t see any short-term benefits from tariffs. Two key factors keep powersports equipment dealers from experiencing the pre-tariff sales surges seen in auto: Powersports purchases are unnecessary, unlike traditional vehicles, and the industry has a more robust existing inventory, Michael Maledon , a partner at Englewood, Colo.-based powersports dealer Elway Dealership Group , told AFN . “In powersports, there’s still a lot of loaded inventory, so the threats of tariffs aren’t really getting those customers in,” — Michael Maledon, Elway Dealership Group. Instead, broader market uncertainty caused by the tariffs has so far led to an increase in promotions as dealerships try to drive sales. Consumer affordability concerns continue to hurt powersports sales, Maledon said. In fact, many customers don’t qualify for the incentivized financing programs, he added. “We just can’t get customers approved. That’s in part because of the state of where the consumer is these days, but also it’s because these products are getting more expensive.” As market uncertainty has a negative impact on stock portfolios, RV and boat sales are slowing as consumers hold off on discretionary purchases, Michael Opdahl , president of Lakeville, Minn.-based lender Source One Financial Services , told AFN . That hesitation means fewer sales and sales that take longer, he said. “From the time we saw the application to the time the deal was funded, that’s getting longer and longer this year,” Opdahl said. Powersports post-tariff pricing unclear [caption id="attachment_58330756" align="alignnone" width="2048"]<img class="size-full wp-image-58330756" src="https://www.autofinancenews.net/wp-content/uploads/2023/06/361034868-scaled.jpg" alt="A Winnebago Industries Inc. travel trailer stands at Motor Sportsland RV dealership in Salt Lake City, Utah, U.S., on Monday, April 6, 2020. Amid the coronvirus, government agencies are obtaining RVs to house the homeless and provide housing for medical workers who can not return home in fear of spreading the virus." width="2048" height="1349" /> Photographer: George Frey/Bloomberg[/caption] It’s unclear how much tariffs could impact powersports prices and higher costs haven’t reached manufacturers yet. RV and motorhome maker Winnebago plans to prepare its MY2026 product pricing with tariffs in mind, Senior Vice President and Chief Financial Officer Bryan Hughes , said in a March 27 company earnings call “While we expect to mitigate a large portion of tariff-related costs, some residual impact may require price adjustments,” Hughes said. President and CEO Michael Happe declined to share “intended pricing actions” on the call, and Winnebago declined to comment further. OEM Polaris saw no material effect from tariffs in Q1, but decided to withdraw its full-year forecast due to the potential for impacts ahead, said Polaris CEO Mike Speetzen on an April 29 company earnings call. “This was not an easy decision,” he said. “However, given the fluidity of the tariff environment, including the frequency of new tariffs, changing tariff rates and the temporary suspension of certain tariffs … withdrawing our full-year guidance is the most prudent course of action.” Donal Hummer Jr. , CEO at ThunderRoad Financial , has heard “absolutely nothing out there” about how high prices or production costs may rise, he told AFN . Tariff-related price increases in powersports, he said, should be less than for other industries due to: The prevalence of domestic manufacturing and It being less vulnerable to steel, aluminum and electronic tariffs. “I don’t think the impact on powersports is going to be as noticeable as potentially on other items, which obviously is good for us,” Hummer said. Auto Finance Summit East 2025 is set for May 12-14 at the JW Marriott Nashville featuring fireside chats with Santander Consumer USA and Chase Auto. Visit autofinance.live for more information.

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