Tariffs and compliance: How trade policies are reshaping auto finance 

The recent imposition of 25% tariffs on imported automobiles and auto parts by the U.S. administration has introduced significant challenges for the auto industry, particularly in the realms of compliance and regulatory adherence.

These tariffs, effective from April 3, for automobiles and May 3 for auto parts, are poised to disrupt established supply chains and operational frameworks. 

Compliance challenges 

Increased production costs.
The tariffs elevate the cost of imported components, compelling manufacturers to either absorb these expenses or pass them on to consumers. This scenario necessitates meticulous financial reporting and compliance with pricing regulations to avoid potential legal pitfalls. 

Supply chain reconfiguration.
Manufacturers may seek alternative sourcing options or consider relocating production facilities to mitigate tariff impacts. Such strategic shifts may require adherence to new legal requirements, labor standards and environmental regulations related to the new source country, adding layers of compliance complexity. 

Regulatory reporting.
Adjustments in sourcing and production locations will put increased pressure on the compliance function. Companies’ onboarding and third-party due diligence processes will likely face strain as demand for alternative sourcing options for components increases. Companies will also need to update compliance documentation to reflect changes in the origin of parts and materials, ensuring transparency with regulatory bodies. 

Handling state and federal regulations 

As the auto industry adjusts to new tariffs, manufacturers will need to manage how the tariffs could have downstream implications for compliance with a growing web of state and federal regulations. 

State regulations on environmental, safety and labor standards
Each state has its own set of environmental, safety and labor standards that manufacturers must adhere to, which can be complicated by changes in production sourcing. 

For example, states like California have strict emissions standards that impact the manufacturing and modification of vehicles. In addition, state labor laws — such as worker classification rules, wage standards and workplace safety regulations — require careful compliance, especially if production is shifted to or from different states.  

Manufacturers must also ensure that any consumer price changes at the state level remain compliant with state consumer protection statutes, which prohibit deceptive pricing or advertising practices.  

Auto manufacturers will need to ensure that components sourced from abroad or new manufacturing locations align with these state-specific regulations, increasing the complexity of compliance. 

Federal regulations on trade, tariffs and consumer protection
The federal government enforces trade and tariff policies, and auto manufacturers must remain vigilant in their compliance with these laws. The Department of Commerce and the Office of the U.S. Trade Representative will closely monitor whether auto manufacturers are circumventing tariffs by improperly sourcing components or mislabeling products.  

In parallel, manufacturers adjusting prices in response to tariffs must comply with federal consumer protection laws overseen by the Federal Trade Commission, which demand transparent pricing and prohibit unfair or deceptive business practices. Clear documentation and communication around price adjustments are essential to avoid regulatory scrutiny.  

Moreover, if manufacturers relocate production or shift to new suppliers, they must also comply with federal labor laws, including the Occupational Safety and Health Administration’s workplace safety standards, and labor classification regulations to maintain compliance and mitigate risks with labor unions and federal agencies. 

Regulatory issues 

Trade agreement violations.
The tariffs could be perceived as contraventions of existing trade agreements, potentially leading to disputes and retaliatory measures from affected nations. This scenario underscores the importance of legal compliance and strategic navigation of international trade laws. 

Certification and standards compliance
Shifting suppliers or production sites may result in components that do not meet established safety or environmental standards, necessitating rigorous testing and certification processes to maintain regulatory compliance.

Consumer protection laws.
Considering the government focus on inflationary costs to consumers, industry should expect that any price increases passed along to consumers will get regulatory scrutiny. Companies will need to manage price increases carefully to comply with consumer protection regulations, ensuring that pricing adjustments are transparent and justified. 

Mitigation strategies 

Robust compliance programs.
Prudent companies should consider investing and enhancing compliance programs to monitor and adapt to changing regulations that can help navigate the complexities introduced by the tariffs. 

Stakeholder engagement.
Engaging with policymakers, industry associations and international partners can aid in advocating for favorable regulatory conditions and mitigating adverse impact. 

The newly imposed tariffs present multifaceted compliance and regulatory challenges for the auto industry. Proactive strategies and vigilant adherence to evolving regulations are essential to navigate this complex landscape effectively. 

Jessica Gonzalez is the vice president of lending strategies at Informed.IQ and has more than 15 years’ experience in the financial services industry, including tenures at Santander Consumer USA and Visa.  

Content sponsored by Informed.IQ.  

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