New tariffs imposed by President Trump on auto parts from China will hit carmaker profits, cut sales and threaten to “start a downward cycle” in the critical industry, analysts said unanimously Tuesday.

In addition, if you’re in the market for a new car, you probably should get to a dealership soon, because prices are going up.

Trump’s latest round of tariffs on Chinese imports will add costs to more than 100 car parts — a 10 percent levy on everything from tires and brake pads to engines and batteries — that go into cars made and sold in the U.S.

“It’s going to be felt by Americans and it’s going to be a big deal,” said Peter Nagle, senior analyst at IHS Markit. “Tariffs are taxes on consumption. Eventually costs will be passed down to the consumer. This will drive vehicle costs higher. It also includes a lot of body shop equipment.”

Analysts said it is unclear how much car prices will go up in order to absorb the costs of a trade war, but everyone agrees that prices must go up — and that parts from China are critical to the auto industry.

Car sales will drop as a result, analysts said.


“This is definitely the “Mother, make it stop” point for the auto industry,” said Jon Gabrielsen, a market economist who advises automakers and auto suppliers.

The latest tariffs on Chinese products could increase car prices in Michigan, Gov. Rick Snyder told CNBC at the World Economic Forum in Tianjin, China. The Republican warned that the costs “will be painful.”

“It’s hard to read a silver lining into this,” said Kristin Dziczek, vice president of the Industry, Labor & Economics Group at the Center for Automotive Research in Ann Arbor. “Tariffs are taxes on American consumers. We’re going to sell fewer. And not only do we buy car parts from the rest of the world, we sell parts to the rest of the world, especially Canada. It’s all going to cost more. These are not things producers can choose to not pass along. This hits profits. This means less reinvestment. It starts a downward cycle that isn’t good.”

She added, “China can wait us out. They have thousands of years of patience. For the car industry, this means a lot of efficiency they’ve gained from building up the global supply chain is lost. It’s not easy to resource these things. The thing is, you can make it more difficult to get parts from China, and automakers and suppliers will not necessarily bring that work back to the United States. There are lots of other places in the world that make those parts. Hitting only China doesn’t solve the problem or bring work back to the United States.”

Tariff rises in 2019

It looks like the U.S. will see a 10 percent tariff applied this month that goes up to 25 percent on Chinese goods on the first of the year, Gabrielsen said. That’s just parts, not the full cost of a vehicle.


Automakers didn’t comment on how they planned to absorb the costs associated with the policy change.

Dearborn-based Ford was assessing the situation.

“We are reviewing the list,” said Ford spokeswoman Christin Tinsworth. “What we would emphasize is that it is essential that governments work together to lower, not raise, barriers to trade. We encourage both governments to work together through negotiation to resolve issues between these two important economies.”

Fiat Chrysler declined to comment on the impact of the new tariffs. General Motors declined to respond to request for comment.

Gabrielsen said some of the costs must be passed on in sticker prices.

“Prices are going to go up, but they won’t go up by 25 percent,” he said. “It is most unfortunate that this is coming at a time when the auto cycle is in very late stage. Vehicle sales already are in slow decline. This will probably be quite a gut punch when they are forced to raise prices.”


He continued, “I suspect this will really start to bite at the beginning of next year. The product they’re putting together this month has already been on the ocean six weeks and is coming into port. It’s going to beat the tariffs. Then they will come across the country on a container on a train.”

Automakers can produce cars for about a month before the costs associated with the 10 percent tariff take effect.

“By Februrary 2019, people will feel it,” Gabrielsen said.

Gabrielsen said it took him nearly three hours to analyze the list of car and light truck items imported from China facing new tariffs effective Sept. 24.

“It covers literally everything that goes into the construction of an automobile, from the smallest components and material inputs like the cords in tires and shafts and gears and bearings all the way up to completed engines and in some cases chassis with engines mounted,” he said. “Thing is, it takes about three years to source each product. It takes many years and possibly a decade to make that full move.”

Jeoff Burris, founder and principal of Advanced Purchasing Dynamics, which has been doing extensive work in automotive supply chain for the past 14 years, offered a grim assessment.


“There is good news and bad news,” he said. “The good is that the tariffs are hitting September 24 instead of September 1 and are 10 percent for a while instead of 25 percent. The bad news is that they are items that require significant development and tooling to resource taking up to two years. Even at 10 percent, the hit to manufacturers will be significant; at 25 percent, for some, the impact will be catastrophic.”

A spokesman for the National Automobile Dealers Association referred inquiries to a study done by the Center for Automotive Research that the trade group commissioned. Its results were delivered during testimony before the U.S. Department of Commerce in July, when auto industry officials urged the Trump administration not to impose tariffs on cars and parts.

“NADA recognizes the importance to the United States of leveling the trade playing field; eliminating unfair trade practices; and keeping America’s automotive industry strong,” said the organization’s president and CEO, Peter Welch. “But a 25 percent tariff applied to all imports would hurt auto manufacturers, dealers, consumers and the economy as a whole. And the hardest hit would be our customers.”

How much will prices rise?

He said industry analysis outlined a scenario where a 25 percent tariff “would see the price of the typical vehicle sold in the United States rise by $4,400. Prices of U.S.-assembled vehicles rise due to an increase in the cost of imported vehicle parts, adding $2,270 to the price. For the typical imported vehicle, these tariffs raise consumer prices by $6,875 per vehicle.”

The study, “Consumer Impact of Potential U.S. Section 232 Tariffs and Quotas on Imported Automobiles & Automotive Parts,” also found that a 25 percent tariff would result in:


n 2 million fewer new vehicles sold per year.

n Total U.S. employment losses of nearly 714,700, and GDP losses of $59.2 billion.

n A loss of 117,500 of 1.1 million U.S. new-car dealership jobs, with the average franchised dealership losing seven jobs.

n An increase in used car prices due to heightened demand and constricted supply.

n Increases in the cost of vehicle maintenance and repair due to higher automotive parts prices, “so even holding on to an existing vehicle will become more expensive.”

Welch urged leaders in Washington to exercise caution.


“The average price a new car already hovers around $35,000,” he explained. “According to Edmunds, in the past year interest rates on new car loans have risen 86 basis points and now average 5.82 percent – with more increases on the horizon. The average monthly car payment for a new vehicle now stands at $533 per month with an average loan term of 69 months. Our customers are already strapped to make those payments. A $4,400 tariff on top of that would increase new car payments to $611 per month (a $78 per month increase) — and put the purchase of a new car out of the reach of many Americans.”

Welch emphasized that new tariffs would reduce consumer choice; increase the cost of used vehicles; and raise the cost of getting vehicles serviced and repaired.

“As a nation,” he said. “we can and should work together to address genuine trade concerns, without hurting American consumers and small businesses.”

Gloria Bergquist, vice president of communications and public affairs at the Alliance of Automobile Manufacturers, said early Tuesday, “Tariffs are a direct hit to the consumer’s pocketbook. This decision would essentially cover every Chinese export to the United States, so it’s hard to see how consumers would not be caught in the crossfire.”

She added, “We encourage the U.S. and China to return to the negotiating table to resolve these trade differences. We believe this is a more effective way for the administration to address unfair trade practices rather than continuing to escalate trade tensions by increasing tariffs.”

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