PLANO, Texas — The threat of tariffs on Mexican imports could have lasting implications for new-vehicle prices and vehicle value depreciation, said Cox Automotive’s Chief Economist Jonathan Smoke at the Nonprime Auto Finance Conference yesterday.
“Tariffs will be very detrimental to the market, leading to higher prices and fewer vehicles sold — essentially causing the affordability challenge to become even-more-so,” he said. “When you drill into where our vehicles come from, almost half — 47% — are assembled outside of the United States,” he added, noting that “Mexico is our strongest trading partner,” representing 15% of that figure.
In addition, the new tariff plan is making it look more likely that negotiations with China over mutually applied tariffs won’t work out, and that the United States will implement tariffs on European and Japanese markets later this summer or in the fall, Smoke said.
“If we have threats against Mexico, Japan, and Europe, you’re talking about the most important segments [for the auto industry],” he said. “The compact car segment probably doesn’t work anymore from a price-point perspective. Crossovers, which is where all the growth is in the new-vehicle market, suddenly become constrained. And, of course, the luxury market would be challenged by [any tariffs] added to Europe or Japan.”
The threat of tariffs on foreign-made automobiles and auto parts also affects vehicle price depreciation, he added. “Up until [last] Thursday at approximately 7 p.m. when my Twitter feed [showed] the President’s action on Mexico, I would’ve strongly said we were going to have normal appreciation for the first time in three years,” noting that the market was previously rattled by the hurricanes in 2017 and tax reform and tariffs in 2018.
President Trump’s proposed plan would impose a 5% tariff on goods coming from Mexico starting June 10, and increase 5% every month until they reach 25% in October, according to a White House press release. The announcement comes on the heels of the expected ratification of the new North American Free Trade Agreement, called the United States-Mexico-Canada Agreement.
“As of Wednesday, it was expected that the USMCA was going to be ratified by all three countries,” Smoke said. “Then you throw this tariff at Mexico, and even that is put into doubt.”