Thread: Every US-made car is an import. That's bad news for automakers

LeglizHemp - 7/3/2018 at 02:23 PM

Every US-made car is an import. That's bad news for automakers
by Chris Isidore @CNNMoney
July 2, 2018: 2:28 PM ET

All new cars sold in the United States will cost more to build and probably to buy if the Trump administration imposes an auto tariff.
That's because every car sold in America is at least partly imported.

The Commerce Department is considering tariffs on cars assembled at foreign plants and on foreign-made auto parts. Every car assembled in the United States contains a significant percentage of foreign parts, according to government data.

"There are no purely American vehicles," said Michelle Krebs, senior analyst at AutoTrader. "These are global automakers who use global sources for all types of parts."

Automakers are already warning that tariffs would raise their costs, in some cases by thousands of dollars per car. General Motors said last week that it could be forced to cut jobs.

US regulators track how "domestic" every car is by measuring the percentage of each vehicle's parts and manufacturing that comes from either the United States or Canada.

According to that measure, the two most "American" cars are both Hondas the Odyssey minivan and Ridgeline pickup. Three-quarters of each vehicle's components are made in the United States or Canada.

The Honda Civic, Acura MDX, Acura TLX and the Mercedes C-class source 70% from the United States and Canada. The highest-ranked car made by a Detroit automaker is the Chevrolet Corvette, which placed seventh. About two-thirds of its parts and manufacturing are from the United States or Canada.

The only automaker that builds all its American cars at a US plant is Tesla (TSLA). But even Tesla imports roughly half the parts it uses.

All major automakers have plants in Mexico where they build some cars for the US market, so they would all have to pay a tariff on imported completed vehicles.

But tariffs on parts would nearly double their estimated import cost: Tariffs on parts would cost automakers $35 billion, on top of $48 billion in tariffs on imported cars that are assembled outside the United States, according to the American Automotive Policy Council, a lobbying group that represents the three Detroit automakers.

American auto parts makers don't have capacity to build all the parts domestically that are currently imported. Most imported auto parts are made in Mexico and other low-wage countries. So the automakers will probably pay the tariffs and pass along much of the cost.

"Nobody wins in this tariff scenario. Nobody's jobs are saved," said Rebecca Lindland, analyst with Cox Automotive. "Everything is going to get more expensive."

More expensive cars could mean fewer sales a drop of 1 million to 2 million vehicles, according to the American Automotive Policy Council. That means US auto plants would probably produce fewer cars and cut jobs.

Used cars could become more expensive, too. If people are forced out of the new-car market, used car demand and prices will rise, according to Lindland and Krebs.

The exact increase in auto prices can't yet be known. Every car has a different mix of parts, and the exact amount of tariffs has not been announced. Automakers may absorb some of the cost to maintain sales.

But estimates show vehicle costs will be significantly higher.

The cost of a car with 35% imported parts would increase by $2,000 with a 25% tariff on parts, according to the American Automotive Policy Council. Toyota (TM) estimates the cost of the Camry, which is built in its plant in Kentucky and is the nation's best-selling sedan, would rise by $1,800 from the parts tariffs. And General Motors (GM) has warned tariffs could force the company to cut jobs at US plants due to an expected drop in sales associated with higher prices.

BrerRabbit - 7/3/2018 at 03:54 PM

Trump has been hoisted by his own petard.

2112 - 7/3/2018 at 06:39 PM

Why are they combining US and Canada together as domestic? Canada isn't immune to the tariffs and Trump has made it clear that Canada is a threat to our national security, with his administration even saying there is a special place in hell for their leader.

nebish - 7/8/2018 at 01:53 PM

US and Canadian parts content has always been combined as long as the window sticker labeling has been around. Chrysler, GM and Ford pushed for this combined stating of content because stripping out Canada from US content would reveal their autos to be much less American than otherwise implied.

"Every US-made car is an import" is a little misleading, as every US-made/assembled car in the finished product is not imported. But yes, I do not think anyone is under the illusion that just because an auto is assembled here means that all the parts come from here. And not all our US auto brands are not all assembled here. Buick for example only builds 2 of their 6 models in the US. Literally when I was at the Cleveland auto show, based on the vehicles Buick and Kia had on display, Kia had more cars assembled in the US on the floor than Buick did.

Buick's push to import more of their product line is a newer phenomenon, as all US brands have to compete with imported cars coming from companies like Kia and mostly built in Korea.

On the other hand Honda and Toyota are absolutely critical to the industry and our manufacturing job base because of their continued expansion and investment here. While they still import many vehicles for sale in the US, they have invested and built here at a time when domestic brands GM, Ford and Chrysler (although Chrysler is Italian owned Fiat now) have outsourced production.

If I was heading up the administration's auto policy the primary targets should be Mexico, Korea and China. Not Japan and not Europe and not Canada. Steel and aluminum, related, but different issue. On autos, Mexico, Korea and China are where our main problems lie.

Unfortunately Trump missed his best opportunity to address autos from Korea when they renegotiated KOR-US Free Trade Agreement. Improvements to the deal were made, but it definitely fell short of curtailing Korean imports or persuading more Korean autos to be built in the US. The growth in Korean brands and built autos in our country has exploded. Yet Kia only builds 2 of their 10 models in the US and their US/Canadian parts content on those is very low (45-55%). Hyundai builds something like 3 of 12 models in the US also with lower US/Canadian parts content.

Contrast that with Honda and Toyota who builds 9 different models each in the US with generally good US/Canadian content as they have also built many facilities to supply those plants with component parts.

Some of the European brands actually build autos here for export around the world (BMW, Mercedes, Volvo). While many domestic car companies here do not export from here, rather choosing to build factories closer to global markets and the end consumer.

In my opinion, Japanese and European brands are so established in our market and our domestic supply chains that they should be applauded and thanked for what they have done. That is not to say we should not expect more of them, they can and should invest more in the US and we need to encourage them to do more. A tariff can do that. So long as they want to sell into this market, assuming they can not simply turn their backs on the US auto market and it's 17million annual sales. For any company wanting to sell into this market trade barriers are a speed bump, not a stop sign. But it definitely has to be constructed carefully and I do worry that the administration is not targeting the right areas.

Like I said, in my view, the biggest problem is Mexico, Korea and China where domestic brands have shifted more of their production to and other foreign brands also operate with competitive advantages.

It is true that those domestic brands were under market and margin pressures to outsource as the foreign brands still benefited from cheaper costs abroad while investing in the US. If Honda and Toyota are going to compete with US brands with some of their cheaper or more profitable imported models, it goes to reason that the US brands will feel the need to respond by seeking cheaper and more profitable models as well, and they do that by outsourcing.

As a rule, I believe that any automobile sold in this country should be built here or subject to an import tariff. Taxes do influence behavior. And as the advantages of building cars in Mexico or Korea or China, or anywhere is evened out with the tax corporations will assess their positions. Just like Harley shifting production to Europe due to their tariff. Just like Samsung and LG built plants here after facing trade battles in court for years from Maytag.

Will that make autos more expensive? Perhaps. Is that a bad thing? Not necessarily. The article gives an example of an $1800 price increase. OK, on a 5 year loan that is $30 more a month. Will it lead to layoffs? The article states that GM may have to lay some workers off. Well, GM has laid off workers at plants that build cars that are not selling due to consumer demand already. All the while they plan to introduce new model(s) that are built at foreign plants. Here is an answer, take those laid off workers and have them build the models from Mexico, China and Korea and build those autos here with US labor.

This is not doom and gloom. This is not economic suicide. Some workers will be displaced, but as companies react accordingly to avoid the tariffs on their cars and build more operations here, those laid off workers can be reabsorbed back into the industry and in my opinion, even grow the jobs in the sector rather than reduce them.

Manufacturing jobs give workers the best opportunity for good pay, benefits and disposable income without being burdened by college loans. Bottom line is we need more manufacturing jobs for people in this country and the effects of the global economy and free trade has only undermined that. Until now. There can be a better way forward and it starts with trade policy that focuses on building things in the USA!

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