Michigan car dealers worry about tariffs on imported cars

Keith Laing
The Detroit News
Cars are parked waiting to be exported at Yokohama port near Tokyo.

Washington — Michigan car dealers who sell international brands are worried that President Donald Trump is on the verge of imposing a 25 percent tariff on their products that are estimated to add as much as $3,700 to the average price of a new imported car in the U.S. 

The uncertainty stems from the fact the U.S. Commerce Department is expected to conclude a nine-month investigation of the national security impact of allowing imported cars to come into the U.S. The process, initiated at the request of Trump in May 2018, could result in the president moving to impose tariffs under the guise of protecting the nation's security as early as next week. 

The Commerce Department is expected to conclude its import tariff investigation by Sunday, although it remains unclear how quickly the findings will be released publicly. 

Adam Thayer, general manager of Ralph Thayer Automotive in Livonia, which sells Volkswagens, Hyundais and Mazdas, said tariffs on imported cars and parts along the lines of the ones floated by the Trump administration would likely put a big dent in his business.

"Anything to drive up cost will make it harder to sell cars," he said. "I'm concerned. I'm not on DefCon red. I don't expect problems in the next month. I think in the next months it will start having an effect." 

If the Commerce Department finds imports pose a national security threat, Trump could allow the president to impose a tariff on imported cars and parts within 90 days. 

The Center for Automotive Research said in a report released Friday such a tariff would increase the average cost of all new cars by as much as $2,750 if Canada, Mexico and South Korea are exempted due to recent trade agreements, regardless of whether they are manufactured by a Detroit automaker or an international competitor. The price of imported vehicles would go $3,700 under the scenario with the exemptions. 

The group previously estimated the tariffs would increase prices of imported cars by as much as $4,400, and all vehicles by $7,000, if no countries were exempted. 

The average price of a new car was $37,149 in January 2019, according to Kelley Blue Book. The price has increased by $1,481 from January 2018. Assuming a $3,000 down payment and a 4.7 percent interest rate, the average monthly payment for a new car sold in Michigan would increase by $83.

The Center for Automotive Research said the proposed tariffs would reduce car sales by 1.3 million per year.

The review process, 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.

Thayer said he has not yet felt a negative impact from the tariffs on foreign steel and aluminum that were put in place by Trump last year, but he scoffed at the notion that the car brands he sells are a national security threat. 

"I'm not a national security threat and my cars are not a national security threat," he said. "To me, it's all politics. I just want to sell cars." 

Trump has floated the possibility of placing a 25 percent tariff on imported vehicles, most recently in retaliation for a decision by General Motors Co. to idle four U.S. plants. The president argues 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, but Canada and Mexico would be exempted under a proposed trade deal between the countries and the U.S. that is intended to replace the North American Free Trade Agreement. The U.S. also reached a new trade agreement last year with South Korea, but there were no provisions that specifically exempted the home to Hyundai and Kia. 

Cody Lusk, president of the American International Automobile Dealers Association, which lobbies for dealers like Thayer in Washington, said the Commerce Department has received overwhelmingly negative feedback about the proposal to place tariffs on imported cars, even from Detroit manufacturers like GM and Fiat Chrysler Automobiles. 

"The real story is we know that imports and imported parts aren't a national security threat," he said. "What's unique about this is whole industry is united in opposition to these 232 tariffs... Nobody asked for this, nobody wants this and it would hurt the entire industry and economy." 

Lusk noted that automakers have said the steel and aluminum tariffs that have already been imposed by Trump have cost them billions. He said car buyers are typically financing cars that now cost more than $35,000 on average and they paying just over $400 in monthly payments. 

"This is at a time when there's a real affordability issue in the marketplace," he said. "I worry about what a sort of artificial price increase would to consumers in the marketplace... Adding a couple of thousand dollars on top of that, the payment is going to go up at least $100 a month." 

Trump has faced pushback on the idea of the tariffs even from fellow Republicans in Washington. 

"I agree with the President that we must have fair and enforceable trade agreements that benefit Americans," Sen. Chuck Grassley, R-Iowa, said in a speech on the U.S. Senate floor Thursday, noting that a 25 percent tariff on imported cars and parts has been estimated to increase the cost of both buying a new car and repairing an existing one. 

"But I do not agree that we should alienate our allies or jeopardize the health of our own economy to achieve good outcomes," Grassley continued.  

The Iowa Republican cited a Tax Foundation study that found that a 25 percent tariff on auto imports would amount to an approximate $73.1 billion tax increase. 

Trump has touted his use of tariffs as the fulfilment of a campaign promise to protect U.S. workers from unfair trade practices he said have been ignored from previous generations. 

"To build on our incredible economic success, one priority is paramount: reversing decades of calamitous trade policies," he said in his recent State of the Union address in defense of his decision to place tariffs on $250 billion worth of Chinese goods while the import levies are under review. 

Kristin Dziczek, vice president of the Center for Automotive Research, said a decision by the Trump administration to impose tariffs on imported vehicles could result in retaliatory levies from other countries.

"For every option, there can be an equal and opposite reaction," she said. "If we're impacting imported cars, they may put tariffs on wine that we export, or American beef. Tariffs are particularly bad for agricultural products because they build up those markets for decades. There could be long-lasting effects."

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Twitter: @Keith_Laing