Well, he wasn’t bluffing. I kind of thought the President was, he loves to do that, and I expected a last minute announcement of deals being struck with some countries, especially Mexico and Canada. That did not happen, although some of the reciprocal tariffs were not levied against our neighbors to the north and south, but the 25% does stand. For now. In the coming days, could individual deals be struck with other countries that are taxing us now? Absolutely. Is that likely? My opinion, yes.
Unfortunately, as I write this Thursday (yesterday, if you look at your newsletter when it comes out) there are many more questions than answers so far. This is not unlike the early days of Covid, or just after the events of 9/11/01. Car companies are scrambling to try to figure out what to do, and there is no “one size fits all” answer here since all automakers are in different positions as far as the percentage of vehicles made inside America.
I believe every automaker is trying to find ways to up capacity inside the borders of the U.S. Unless a car company has a plant that is not being used, or that is under capacity, this will take time. It is hard to build a massive auto plant and get it staffed and ready in under three years. It is not cheap either. This is going to be an ever-changing situation, likely daily, as each automaker tries to figure out how to weather this storm. Clearly, the automakers are wondering aloud what will happen if they sink billions into new assembly plants and in 2028 a new President is elected and scraps everything going on today. Seems to me to be a trend the past few elections when the party in power switches and completely dismantles everything done the previous four years.
What we know so far
- I am sure you are wondering if car prices will jump. Overall, I think the answer is yes, but not overnight. There are roughly 3 million cars sitting on dealer lots or in transit, inside our boundaries right now. Most automakers have been rushing to get cars that are made outside the U.S. on American soil in anticipation of the tariffs. None of the vehicles on the ground now will go up in price, but there could be a reduction in incentives soon, which has the same affect. Although the supply of new cars today is about 77 days, a run of people buying cars to beat the tariffs will shorten the supply dramatically and quickly.
- Most automakers cannot and will not raise prices by 25% on the cars built elsewhere. All of the tariff amounts or a least some of the dollars will be absorbed. All car companies are looking at ways to slash expenses. Will that affect you? It could-one easy place to cut is incentives. I have already seen a few of the manufacturers pull back for April, but on the other hand, that is normal. Incentive spending usually falls back after the end of a quarter and all the Japanese-based automakers ended their fiscal year this past Monday, so they all had plans to cut incentives no matter what.
- Will all new cars go up eventually? Very likely, even the 65% of them that are made in the United States will see price increases in the future. Automakers will raise prices on domestic production to balance the tariffs on vehicles made outside our country. They also want price parity. In other words, if you take the same vehicle that is made both in the U.S and in Canada, those will all be the same price to keep customers from seeking out the ones made here, and letting the ones outside America sit unsold.
- Some automakers are staying the course. Toyota has publicly said they would not raise prices due to the tariffs in the near future. That will put pressure on their competition to try to do the same. Ford jumped in immediately with a blockbuster program offering Ford Employee Pricing on the vehicles that are in stock now. That represents a tremendous savings for consumers, and they did not cut out all the rebates, either. Volkswagen has said they will add the tariff charges on the factory window sticker of vehicles and show the amount they are adding to the price. Almost certainly it won’t be the full 25%. Stellantis has not said how they plan to handle pricing but have said they would idle plants in Mexico and Canada, and they will lay off 1,000 workers in the U.S. while they figure out a plan. General Motors has said they can make immediate moves to get more production inside our borders, especially pickups in Indiana. The rest of the automakers have not publicly stated how they are going to handle the tariffs.
- Used cars are going to rise in value, although it is unclear how much. I saw prices tick up Wednesday as I watched the auction. Prices are likely to continue to rise on used, which is great if you have a trade-in. That can help absorb the rise in new car prices. This news isn’t good if you are going to purchase a used car to avoid new vehicle price hikes. Should new cars sales slow down some, this will cause used prices to go even higher due to the lack of trade-ins. I also expect the rental agencies to hold on to their rental fleets longer, which will also dry some of the supply of used cars coming onto the market. Supply and demand always set the market. Fewer used cars=higher prices. Another source of used cars is off-lease vehicles. I believe more people with leases ending soon will purchase their lease cars to avoid the tariff price increases on new ones.
My Advice
I am never an advocate of “panic trading." I don’t think it is wise and people make mistakes. However, if you were contemplating getting a new car before the end of summer, do something NOW. Every day that passes will lower the supply of new vehicles at pre-tariff prices. If you want or need something very specific in a vehicle, do it NOW while there is still a good selection. If you are looking or considering an entry level vehicle, say $30,000 or less, do it NOW. Those vehicles yield very little profit for automakers and if or when production cuts happen, it will be on those vehicles. If you have put off repairs on your current vehicle, do it NOW before the tariffs on parts and components kick in. This includes things like tires and windshields. WARNING: I have had reports of some dealers already placing addendum stickers on new vehicles to add a “tariff surcharge” or something to that effect. Don’t fall for it. For now, nothing with wheels on the ground has a tariff, this is just a way to extort money from you.
In conclusion
Again, this is going to be an ever changing situation, daily and sometimes hourly. I predict intense negotiations between the U.S. and other countries and deals to be struck with each one. Other countries will cave and we’ll meet somewhere in the middle. It’s the art of the deal. Until we are able to settle in and know the plans for all the automakers and who is raising prices and who is absorbing all or part of them, there will not be solid answers. For the most part, the dealerships are saying it is “business as usual.” Like we saw during Covid and the subsequent microchip shortage, the dealers that are part of the Car Pro Show will be honest with you and will not gouge you. You are in good hands with them. So, stay tuned to the radio show, or listen to the podcast, and watch your newsletter weekly. I will be giving you updates every Friday until this is over, or things settle in and we know what the future holds.
Photo: Volkswagen Group Of America's Gulf Coast port facility in Freeport, Texas. (October 2024.) Credit: Volkswagen Group of America.
