Dealers ‘Nervous’ as Tariff Threat Decreases Consumer Demand

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Declining consumer demand to purchase cars is imminent if President Donald Trump raises U.S. duties to 25% on all imports of automobiles and auto parts, one dealer told Auto Finance News.

“Right now, people are more afraid to buy cars because of Trump,” Saif Kadri, sales manager of Carson Nissan, said. Tariffs on auto parts will have consumers seeing new vehicle prices increase by $4,400 on average, according to an analysis by the Center for Automotive Research (CAR).

“We are hoping a lot of it is just boisterous talking,” Paul Ritchie, president of Hagerstown Honda and Kia, told AFN in regards to the president’s comments. The possible tariff on imported auto parts is making dealers “nervous,” he added. “It can dramatically impact the economy if automobiles are restricted.”

Used-vehicle prices will also rise due to more consumers opting to purchase lower-priced cars, which will result in constricted supply, CAR notes. Additionally, holding on to an existing vehicle will become more expensive, too, due to higher prices of auto parts.

The dealer has to buy the vehicle from the manufacturer, so “right off the bat” there are increases for how much they are financing these vehicles and floor plan financing is going to go up,” Cody Lusk, chief executive of American International Automobile Dealers Association, told AFN. “It’s going to undermine the ability of American-based dealers.”

One solution is for dealerships to buy more cars up front, but that’s not realistic, Kadri said. “Dealers are never going to do that because the models change every year.”

Additionally, if a dealer has more cars in their fleet and they can’t sell those cars due to the drop in consumer demand, then after 180 days the dealer is financing the car through their lender and paying 2% interest on flooring.

Auto demand will fall by between 493,600 units to 2 million vehicle sales in 2018 as a result of the implementation of tariffs, according to CAR estimates.

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