Roughly one out of every 100 working Americans is employed in the business of selling cars and car parts. How might those businesses be affected by new import tariffs?
There is no shortage of opinion stories and special interest groups decrying newly proposed tariffs on imported vehicles. The automakers are surely against it. They have spent half a century diversifying their manufacturing to place the work where it is performed the most cost-effectively. Lobbyists who work for international automakers are against it.
John Bozella, a Washington lobbyist and the CEO of Global Automakers, a D.C.-based group that represents the interests of automotive companies such as Ferrari, Toyota, Hyundai, Subaru, and Aston Martin, says that the proposed tariffs “..will harm today’s U.S. auto industry, which is comprised of 14 auto manufacturers, all of which are global and 10 of which are international automakers.”
Pretty much everyone is in agreement that the steep tariffs proposed would raise the prices of new automobiles. The United Auto Workers see some good in investigating tariffs on imported vehicles. UAW President Dennis Williams said, “I welcome the fact that they’re investigating this and considering,” Williams told a media roundtable at union headquarters in Detroit. “The American workers have been handed a short stick for a long time.” One large group that seems split on how the proposed tariffs might affect their business are the people that actually sell vehicles, car dealers. The U.S. Department of Labor says that car dealers employ over 1.3 million Americans.
Cox Automotive has just released the results of its latest dealer survey. Cox counts among its clients over 40,000 car dealers. When asked “Which of the following best describes the impact on your business’ profitability next quarter if tariffs are imposed on imported vehicles and parts?” 51% of dealers surveyed replied “No Impact.” Surprisingly, more than one in ten report that they would expect a “Positive Impact.” The answer shifts a bit when only franchised auto dealers are asked that same question. Nine percent of those dealers expect a positive impact, 35% expect no impact, and 56% expect a negative impact in the next quarter if new tariffs are put in place.
When dealers are asked the question, “What, if any, positive impacts would imposing tariffs on imported vehicles and parts have on your business? Please select all that apply,” the top answer is “increased traffic for used vehicles.” That’s no surprise. In the short term, many expect that used vehicles will appear more attractive to consumers if the prices of new cars, particularly imported new cars, were to jump. The second most common answer was “Will make the market stronger overall.” That market being the automotive sales market. 27% see “Increased domestic vehicle sales” as one positive result of the tariffs. Which is certainly one of the goals of the tariff program being considered. Only about one dealer in seven could find no positive impact on their business.
Higher prices are seen by two-thirds of new car dealers as one possible negative. However, in total, less than half of all dealers see that as a negative. Logically, there is no reason to jump to the conclusion that higher prices would be a negative for dealers. About 25% of dealers say that longer transactions could result from tariffs. It is important to note that the dealers in this questionnaire are not being asked how the consumer will be impacted, though we can extract some insight on consumer prices from the answers. 60% of dealers see higher prices resulting from tariffs (and they view that as a negative). 55% see higher prices for imported vehicles and 48% see higher prices for domestic vehicles being a negative result.
About the survey: Derived from a quarterly survey that Cox Automotive issues to a representative sample of franchise and independent auto dealers, the Cox Automotive Dealer Sentiment Index measures dealer perceptions of current retail auto sales and sales expectations for the next three months as “strong,” “average” or “weak.” The survey also asks dealers to rate new-car sales and used-car sales separately along with a variety of key drivers including consumer traffic. Responses are used to calculate an index where any number over 50 indicates that more dealers view conditions as strong rather than weak. See the full survey here.