New York
CNN
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Rates for the Canadian and Mexican import looms again. And that can quickly rise car prices, even for those who have been collected in the United States.
That is because the car -industry has operated on for decades as if the whole of North -America is an internal market, in which cars are moved parts and vehicles freely across the borders of the three countries. As a result, there is no such thing as a completely American car built with parts that were made exclusively in the United States.
President Donald Trump said this week that rates of 25% at the value of all imports from Mexico and imports other than energy products from Canada will come into effect on Tuesday. The last time Trump announced these rates, he quickly turned the course and delayed them to come into force for a month. But unless a delay or the threat of rates has fallen completely, the car – industry – and car prices – will experience a seismic shock.
“Nowadays there is probably no vehicle on the market that would not be influenced by rates in any form or fashion,” Peter Nagle, automotive economist for S&P Global Mobility, told CNN. “I would think the prices would start to change in one to two weeks after the rates are in force.”
The US government follows the percentage of the parts of each car ‘in its own country’. But according to current trading legislation, parts and the US made in both Canadian parts and effectively from one country are counted. Even with the broader definition of ‘made American’, no one is more than 75%.
There are only two vehicles considered by the US government to be 75% “made American” -the Tesla Model 3 and the Honda Ridgeline, a pick-up assembled in a Honda factory in Lincoln, Alabama. And again, that 75% figure includes parts from Canada.
Almost all vehicles with 50% or more of their parts of American or Canadian suppliers are built by Tesla or brands that are apparently ‘strange’, but are composed in the United States – Honda, Hyundai, Kia, Nissan, Mazda, Subaru and Toyota.
The Ford F-150, the most popular vehicle in the United States for more than 40 years, has made the most components of each vehicle produced in its own country by one of the three car manufacturers of the Detroit. While all parts are assembled in a pick -up truck in Michigan or Missouri, only 45% of those parts come from American or Canadian factories. Many of the larger versions of his engines come from Mexico.
“Yes, it is the American truck, composed in America, but not with American parts,” Ivan Drury, director of insights for the Edmunds car site, told CNN.
This means that in addition to the rates, cars that have been collected in Canadian or Mexican plants – even those in the United States – will also rise by thousands of dollars each. And those costs are expected to be passed on to consumers quickly. These vehicles include the Chrysler Pacifica and some Chevrolet Silverados, which have been assembled in Canadian plants, and the Ford Mustang Mach-E and Honda HR-V, which have been assembled in Mexican plants.
“Let’s really be honest: long term, a rate of 25% in the Mexico and Canada borders would blow a gap in the American industry that we have never seen before,” said Ford CEO Farley in comments to investors in February.
American car dealers have an average of a two-month stock of vehicles on their plots and showrooms, ranging from a 36-day stock at Toyota and Lexus to a 92-day stock for Ford and Lincoln, according to data from Edmunds.
But even the prices of those cars that were built before rates come into force, will probably see prices rising as dealers try to retain that inventory.
“The inventory at hand will become much more valuable and they will try to extend the range of no-tariff offering as long as possible in the hope that it will be resolved quickly,” Nagle said.
Productions on production will probably increase prices quickly, what happened from the first year of the COVID-19 Pandemie. Subsequently, a scarcity of computer chips caused a different car shortage, because cars cannot be built if they even miss a small number of parts. As a result, buyers quickly paid record prices. Even used car prices rose at an unprecedented pace, not because they needed new computer chips, but because a limited number of new cars were available.
“We could see a return of what happened during the chip crisis, when most people paid above the sticker price,” said Nagle. “Affordability can be endangered fairly quickly.”
The average selling price for a new car purchased by American buyers achieved a record of $ 49.327 in December and only set $ 1,200 lower in January, according to data from Edmunds. But it is expected that new cars will be sold on average for more than $ 50,000 by March, which is the start of a relatively busy purchase season for car manufacturers as tax returns become available.
“There will be a lot of sticker shock,” said Nagle.
‘Costs a lot and a lot of chaos’
Automakers have tried to prepare for rates by storing Mexican and Canadian parts and building inventories of vehicles from those countries. But those measures will only help for a short period.
The costs for producing cars in North America will rise between $ 3,500 and $ 12,000, according to the analysis of both public and private data by the Anderson Economic Group, a think tank established in Michigan. And because it is not logical to incur some of the models at those higher costs, in particular cars with cheaper option packages, there are probably cuts in the production and jobs in the industry, Patrick Anderson, the CEO of the group.
“Producers will stop making part of the Models, “Anderson predicted. And he said that Trump’s suggestion that car manufacturers will quickly move production back to the United States in response is not at all realistic.
“I don’t see how you can move a production plant over a border within a few months or even a year,” he said. “It is a multi -year process to move a plant. There is no path to pull the stakes in Ontario and move to Indiana. ”
Trump’s earlier tariff distribution A month ago, financial and logistical problems caused car manufacturers, even though they were not in force.
“So far we see a lot of costs and a lot of chaos,” said Ford’s Farley on 11 February at a Wolfe Research Conference.
Automakers have made it clear that if the rates are imposed in the long term, this will increase their costs. In reactions to another investor conference last month, General Motors CFO Paul Jacobson repeated earlier statements from the company that it was willing to take steps to adjust for rates that could be of nature in the short term, but that it would be more difficult if it seems that rates are in place in the long term.
“If they become permanent, then there are a whole series of different things that you have to think about, in terms of where to plants, you move plants, etc.,” Jacobson said. But he said that making that kind of expensive movements is difficult in view of the uncertainties of the policy.
“Those are questions that just don’t have an answer today,” he said. “As much as the market prices in a major impact of rates and lost profitability, think of a world where we spend billions of capital, and then it ends. We cannot wave the company back and forth. ‘
In the short term, cuts in production can mean temporary dismissals in factories in the United States.
There are around 1 million people who build cars and make car parts, according to the labor department. About 300,000 work in American car assembly plants. AutoWorkers at General Motors, Ford and Stellantis are united and have some protection when they are fired – such as additional wages to cover most of the difference between unemployment benefits and their normal wages. But about half of the 300,000 American car factory employees have not negotiated protection.
And most of those million factory workers are in parts manufacturers, both large and small, and job losses at those suppliers can be serious.
“The effect of this goes much further than people who are employed by car manufacturers,” Anderson said. “Parts manufacturers, those involved in shipping, even advertising, the cutbacks will be enormous costs. It will be a shock for the entire market. ”
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