Carmakers to U.S senators: Tariffs will hike prices

Keith Laing
The Detroit News
Economists say no single community has been dramatically transformed by a southeastern Indiana Honda factory, despite soaring production numbers since the assembly plant opened a decade ago.

Washington — Auto industry executives warned members of the U.S. Senate on Wednesday about the possibility of higher car prices and industry-wide job losses if President Donald Trump imposes new tariffs on imported cars and auto parts.

The hearing, conducted by the U.S. Senate Finance Committee, occured as the U.S. Commerce Department is investigating the national security impact of allowing imported cars to come into the U.S. The inquiry, referred to as a Section 232 investigation in reference to a 1962 trade law that allows the president to impose tariffs if he determines a security threat exists, was used recently by the Trump administration to impose tariffs on imported aluminum and steel.

The Trump administration has floated the possibility of placing a 25 percent tariff on imported vehicles. They argue that auto imports pose a similar threat as they found foreign aluminum and steel did. It is unclear which countries would be included if the Commerce Secretary recommends moving forward with the tariffs on imported cards.

The investigation and implementation could take up to a year, if the example of the metals tariff is any indication.

Rick Schostek, executive vice president of Honda North America, told lawmakers that his company has built most of the cars that it intends to sell in the U.S. since 1982. Last year, he said, 66 percent of the 1.65 million vehicles Honda sold in the U.S., were made in one of the company's U.S. plants. 

"Every manufacturer, no matter who, who builds vehicles does it with both domestic and globally sourced parts," Schostek said. "A new tax on imported parts would increase the price of every vehicle built in U.S. factories, and similarly a 25 percent tariff on imported vehicles would depress sales. The industry would end up purchasing less from U.S.-based supplies, resulting in U.S. job loss. It's estimated that the tariffs will increase the price of a new vehicle up to $7,000." 

Steve Gates, principal owner of the Toyota dealership Gates Auto Family in Richmond, Ky., said tariffs would place additional burdens on car buyers who are already grappling with the rising cost of new cars.

"I used to think if I worked hard and I kept my expenses in line and I took car of my customers that I could at least to get by," said Gates, who is also secretary and treasurer of the American International Automobile Dealers Association, which lobbies for car dealers. "But if a 25 percent tax is levied on imported vehicles and parts, it won't matter how good a car dealer I am. People can't, or won't, buy cars. They'll just be too expensive." 

Gates, who described himself as a third-generation car dealer, noted the cost of a new car has increased by 35 percent over the past 20 years, rising to nearly $36,000 in 2017. Additionally, he said, interest rates for auto loan financing have risen in recent months, further complicating the car buying process for most consumers. 

Josh Nassar, legislative director for the United Auto Workers, said his union is "keeping an open mind" on the possibility of imposing tariffs on foreign cars. He cited concerns about automakers outsourcing factory jobs to Mexico and the lack of labor provisions in previous trade agreements. 

"Trade's not a black-and-white issue for us," he said. "Of course we’re for trade, our members build products that are exported around the world and it's very important that we have functioning good trade markets... Now when it comes to tariffs, we think that at times tariffs can be an appropriate tool to address a problem. But they do not constitute a comprehensive strategy in and of themselves." 

U.S. Sen. Debbie Stabenow, D-Lansing, said auto workers in Michigan are looking for targeted solutions that will not harm one of the state's most dominant industries.  

"My mantra always in Michigan — we’re the fifth-largest exporting state, both manufacturing and agricultural, we need to make things and grow things — is we want to export our products, not our jobs," she said.

"To do that, we need a level playing field," Stabenow continued. "What’s happening unfortunately with sort of throwing everything at the wall, which is what they’re doing, section 232, section 301, NAFTA, is that there’s total instability right now."  

U.S. Sen. Orrin Hatch, R-Utah, who is chairman of the Senate Finance Committee, also expressed concern about the Trump administration's frequent use of tariffs in trade disputes. 

"For most American families, a car is one of the most expensive purchases they make – often second only to the purchase of a home," he said. "It is a significant financial commitment for most families, often paid for with debt, and I’m shocked that anyone would consider making it more expensive."

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Twitter: @Keith_Laing