US car dealers gearing up for negative impact of tariffs

A car hauler transports Chrysler vehicles from the FCA Jefferson North Assembly Plant in Detroit, Michigan on May 25, 2018.
A car hauler transports Chrysler vehicles from the FCA Jefferson North Assembly Plant in Detroit, Michigan on May 25, 2018. PHOTO: REUTERS

NEW YORK • Ask car dealers what they make of the US President threatening to tax imports of European models, and they will tell you buyers of those cars might as well throw the money saved on their tax bills out the driver-side window.

"It'll have one of the most negative effects on his presidency and anything good he's done," Mr Marc Cohen, vice-president of Priority 1 Automotive Group, said after Mr Donald Trump tweeted a threat that sank shares of carmakers, including Volkswagen and Daimler.

Mr Trump's rhetoric against cars made in Germany, Japan and Mexico was common on the campaign trail and continued early on in his presidency. But there was little follow-through for America's car dealers to worry about - until lately.

With the administration now investigating if car imports pose a national security threat and vowing to slap levies on China-built Buicks and other models within weeks, salesmen in showrooms across the country are sitting up in their chairs.

"It's definitely got legs under it now, and it'll be tragic," said Mr Cohen, who sells BMW, Porsche and Audi vehicles in Baltimore.

The cost of the tariffs will have to be passed on to consumers, which will hurt sales, said Mr Frank Ursomarso, a BMW, Jaguar and Volvo dealer in Delaware, who described Mr Trump's tweet as scary.

"It's a simple rule of economics - the higher the price, the lower the volume," said Mr Ursomarso, chairman of Union Park Automotive Group, which also includes General Motors' Buick and GMC brands.

"I don't think dealers can absorb much more," he added.

The United States imported about 1.16 million vehicles from European Union countries last year, according to Commerce Department data.

BMW and Mercedes-Benz maker Daimler produce hundreds of thousands of sport utility vehicles in the US South, so the more common models arriving on American shores are sedans such as BMW's 3 Series and 5 Series, and the Mercedes E-Class.

"I have a BMW 750 here, and I've got about US$111,000 (S$150,800) in that car," Mr Ursomarso said, referring to the money dealers pay manufacturers for their inventory. "If you put a 20 per cent tariff on US$111,000, you're not going to sell as many."

The Detroit Three also have a handful of models that would be at risk, including Fiat Chrysler Automobiles' Jeep Renegade and GM's Buick Cascada convertible.

Mr Trump's tariff rhetoric risks hurting consumer confidence and undermining a US car market that was expected to shrink for a second straight year, after record sales in 2016, said Mr Cody Lusk, president of the American International Automobile Dealers Association.

"All of that combined with increasing interest rates is a recipe for disaster," he said.

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A version of this article appeared in the print edition of The Straits Times on June 25, 2018, with the headline 'US car dealers gearing up for negative impact of tariffs'. Print Edition | Subscribe