As dealers scurried to meet sales objectives to close May, President Trump announced another possible tariff that automotive industry leaders and observers caution could leave significant negative impacts.
Associated with what the president called the “border crisis,” the White House released a statement saying the United States will impose a 5% tariff on all goods imported from Mexico starting on June 10.
“Should Mexico choose not to cooperate on reducing unlawful migration, the sustained imposition of tariffs will produce a massive return of jobs back to American cities and towns,” Trump said in that statement issued late on Thursday.
“Remember, our great country has been the ‘piggy bank’ from which everybody wants only to take. The difference is that now we are firmly and forcefully standing up for America’s interests,” Trump added.
Despite that contention, Cody Lusk is concerned about the possible damage the tariff could create since so many vehicles and parts are manufactured in Mexico. Lusk is president and chief executive officer of the American International Automobile Dealers Association (AIADA), which represents America’s 9,600 international nameplate franchises and their 578,000 employees.
“Imposing new tariffs on Mexico really means imposing a new tax on American consumers, raising prices on everything from produce to pickup trucks,” Lusk said. “Tariffs on Mexican imports will result in self-inflicted damage that the U.S. auto industry, which supports 7.25 million American jobs, is not prepared to absorb.”
Cox Automotive chief economist Jonathan Smoke elaborated about the depth of the Mexican connection to the U.S. automotive industry in this blog post. Smoke began by noting 15% of new vehicles sold in the U.S. last year were assembled in Mexico.
“What is uniquely challenging about a disruption in the free flow of goods across the U.S.-Mexico border is how heavily American-based manufacturers depend on Mexico for final assembly,” Smoke wrote. “There is no Mexican make sold in the U.S. The majority of vehicles assembled in Mexico come from American brands.
“Of those ‘Mexican vehicles’ sold in the U.S., 57% were domestic makes. Two of these ‘domestic’ makes — General Motors’ GMC brand and Fiat Chrysler’s Ram brand — see about 40% of their U.S. sales coming from vehicles actually assembled in Mexico,” he added.
Edmunds executive director of industry analysis Jessica Caldwell wondered if Trump approached this tariff proposal similar to how he uses social media.
“The auto industry doesn't move at the speed of a tweet. Without any details of exactly how Trump will measure success, at this point all automakers can do is hope this is just another empty threat,” Caldwell said.
“If these tariffs are enacted, everyone loses. Trump talks a lot about supporting the U.S. auto industry, but the Detroit automakers will be hurt the most by this. Profits from vehicles like the Silverado keep GM’s lights on, and if you start to put that at risk, it could be disastrous considering they’re already in cost-cutting mode,” she continued.
Could there be silver lining for the used-vehicle industry? Perhaps, according to Caldwell.
“With the average price of a new car already at record highs, car shoppers will really feel the pinch if costs rise even a little higher,” Caldwell said.
“The good news for shoppers is that there's a glut of affordable off-lease used cars on dealer lots waiting for a new home, but that’s not exactly good news for automakers,” she went on to say.