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Dealerships brace for possible impacts of tariffs on new vehicles

March 8, 2019
Dealers hope that President Donald Trump is bluffing with his threat to increase tariffs on imported cars.
If he’s not, the auto industry, consumers and the entire U.S. economy are in for a lot of hurt.
The Commerce Department on Feb. 17 sent Trump a report, at his request, on whether to impose tariffs on autos and auto parts as a national security measure. The report hasn’t been made public, but the president has 90 days to decide what to do.
A trade war over autos would raise prices for consumers and make automakers rethink their global supply chains. Brad Sowers, co-owner and general manager of Jim Butler Auto Group, in St. Louis, figures car dealers would be caught in the crossfire.
"It’s one of those scenarios we hope doesn’t happen," he said. "Certainly we don’t think it’s necessary."
The Center for Automotive Research estimates that a 25 percent tariff would raise the average new vehicle’s $35,000 sale price by $2,750. The sticker shock would be greatest on imported cars, but U.S.-made vehicles could be affected if the tariff also applies to parts.
Jim Butler’s eight dealerships employ 340 people and sell brands from the all-American Chevrolet and Jeep to expensive imports such as Maserati. A sudden price increase, Sowers fears, would cause customers to delay their car-buying plans or settle for a used vehicle instead of new.
"If I increase the price by $2,000 to $3,000, that’s a big jump for a consumer," he said. "Obviously if we see a slowdown, there are things we would try to cut back on, including the amount of vehicles I get from the manufacturers and the number of employees I have in place."
The Center for Automotive Research study, sponsored by the National Automobile Dealers Association, estimates that tariffs would reduce U.S. vehicle sales by as many as 1.3 million units, costing dealers $43.6 billion in revenue.
That could eliminate 77,000 jobs at dealerships and as many as 366,900 throughout the economy, including at manufacturers and parts suppliers.
Not all St. Louis dealers oppose Trump’s taking action against imports. "If this helps level the playing field, I’m all for having a tariff," said Dave Sinclair Ford President James Sinclair, whose late father was known for his buy-American commercials.
Most of the industry, however, would rather stay out of this fight. Groups representing both domestic and foreign-owned automakers oppose the tariffs, as does the dealer group.
Peter Nagle, senior automotive researcher at IHS Markit, thinks dealers are right to be worried. "The industry employs a lot of people in the distribution and service sectors, and lower sales at dealerships is where the pain would be concentrated," he said.
Given the opposition of most of the industry, it’s puzzling why the tariffs are even being considered. The national security justification looks spurious.
"It really didn’t seem to have a lot of buy-in from the Defense Department, so I don’t think that is the primary reason the tariffs might be undertaken," Nagle said.
It’s not even clear whether tariffs would reduce the trade deficit, which Trump seems to use as a policy guide. Imports would fall, but so would exports if other nations retaliate. More than half of the vehicles built by BMW in South Carolina and Mercedes-Benz in Alabama are sold abroad.
The president has emphasized that he’s a "tariff man," which may be all the explanation needed for his policy trial balloon.