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Cost of Trump tariffs: At least 1 million car sales annually

24/7 Wall St. logo 24/7 Wall St. 6/12/2018 Paul Ausick

If President Donald Trump follows through on his threatened 25% tariff on automobile imports, the U.S. vehicle industry may lose a minimum of 1 million car sales a year. That's the good news; the bad news is the loss could be twice as much.

Industry analyst Jeff Schuster at LMC Automotive told IndustryWeek that if Trump's tariffs are imposed, the size of the loss in sales depends on who picks up the additional 25% to be tacked onto the sales price of a vehicle.

If automakers absorb at least half of the cost of the tariff, Schuster estimated, the sales loss would be 1 million vehicles. If automakers pass on the full 25% of the cost, sales could fall by 2 million vehicles. That's more than 10% of total U.S. car sales annually.

The large foreign automakers that would be most affected by Trump's tariffs are Volkswagen, Daimler, BMW, Toyota and Honda. All these manufacturers also build cars in the United States and BMW exports more U.S.-built cars than any other maker, foreign or domestic.

BMW's X-model SUVs (X3, X4, X5, X6 and, later this year, X7) are built at the company's manufacturing facility in Spartanburg, South Carolina. The plant exported 272,346 units last year with an approximate dollar value of $8.76 billion, or 15.4% of the year's total U.S. auto export value. BMW exported more than 73% of the 371,284 X-models built at Spartanburg last year and the rest were sold in the United States.

Schuster said if Trump follows through on his tariff threat, U.S. consumers are likely to act in one of three ways. The obvious first choice would be to look for a U.S.-built vehicle that is cheaper than an import. A second option would be to seek out a good used car like the lightly used vehicles that are being returned from leases. The third choice would be to wait to see how long the unpopular tariff would last.

U.S. auto sales reached an all-time high of 17.6 million units in 2016 and are projected to be about 17.1 million this year.

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