Experts claim that Trump’s tariffs will lead to an average price hike of $3,600 for vehicles. Here’s all the information you should be aware of.
Trump’s 25 percent tax on cars from abroad
will turn into reality on April 3
And from what we can see on the surface, the figures aren’t very encouraging for car manufacturers or buyers.
On Thursday, Bernstein Institutional Services LLC, an investment research company, released a report outlining the financial effects of the new tariffs on costs, profit margins, and trading volumes. Here’s what you should be aware of.
The Numbers
As of January, the typical new car in America has an average price tag of $49,740, according to data.
Kelley Blue Book
Bernstein forecasts that prices will rise by 7 percent, approximately $3,600, due to the tariffs. This escalation could elevate the average cost of a new vehicle to an all-time peak.
According to Bernstein’s forecast, tariffs could result in an additional expense of $6,700 for each vehicle produced, totaling approximately $110 billion yearly. The analysis suggests that Original Equipment Manufacturers (OEMs) might have to decide whether to increase prices, absorb these costs internally, or reduce profit margins. Despite potential adjustments such as passing the tariff expenses along to consumers and restructuring their supply chains, firms similar to Ford and General Motors should anticipate a significant drop—around 30 percent—in Earnings Before Interest and Taxes (EBIT) for this year.
Meanwhile, Stellantis might perform somewhat better regarding tariffs due to the significant presence of American-made components in vehicles produced in Mexico, as per Bernstein. Tesla emerges as the primary beneficiary because of its manufacturing facilities in the United States and substantial market share. On the other hand, smaller electric vehicle companies such as Rivian and Polestar will likely face considerable challenges primarily owing to their reliance on overseas suppliers.
To get a comprehensive overview of how various manufacturers may be affected positively or negatively by the tariffs, check out this link.
our dedicated article
.
So What Happens Now?
The tariffs will take effect starting April 3rd. In preparation, automobile manufacturers have built up their inventories. Currently, there are around 2.7 million cars stored at dealerships, equating to about a 54-day supply as stated by Bernstein. Typically, vehicle purchases increase during spring, so this existing stock might be depleted by early May.
Following this period, Bernstein anticipates that the expenses from tariffs will start impacting the profit margins for carmakers. Vehicles produced in the U.S. might receive some respite due to exemptions provided to producers under the United States-Mexico-Canada Agreement (USMCA). However, these benefits are expected to be short-lived, lasting just about a month, after which these manufacturers will face the full brunt of the tariff disadvantages.
Bernstein forecasts that it might require 12-36 months for companies to revamp their supply networks and production plants. To provide perspective, carmakers required 18-24 months to recover from the chip scarcity triggered by COVID during 2020-2021, resulting in significant financial losses amounting to billions of dollars.
How Will Automakers Respond?
According to Bernstein, auto manufacturers face a decision: increase prices or maintain production levels. Should they choose to transfer the entire $6,700 average expense to consumers, fewer individuals would purchase the vehicles. Conversely, absorbing the tariff costs themselves means not losing any customers.
Transferring all the tariff costs onto consumers could result in an average reduction of 10% in vehicle volumes for carmakers, according to Bernstein. However, the analysis firm notes that larger, pricier trucks and luxury models may face less resistance from buyers when subjected to increased pricing, as these were initially priced quite steeply anyway.
According to Bernstein, compact SUVs and small cars—which are two of the most sought-after categories in the U.S.—are expected to face significant challenges due to their slim profit margins and intense price competition. The research company predicts that models such as the RAV4, Crosstrek, Corolla, and Civic could experience volume drops between 8% and 11%.
More on Tariffs
- Thanks, Tariffs: Importing Japanese Cars May Soon Become Much Costlier
- Hyundai’s Investments in the U.S. Show Confidence Despite Tariffs
