By Nick Carey and David Shepardson
NEWYORK (Reuters) – Major automakers are bullish on the outlook for the U.S. economy and auto sales, but one big question remains – will President Donald Trump throw a grenade into the sector by imposing sweeping tariffs of up to 25 percent on car and auto parts imports?
The industry is in “wait-and-see mode,” but the tariffs would be a bad idea, Bob Carter, head of U.S. sales at Toyota Motor Corp, told Reuters on Wednesday.
“If the tariff happened on the auto industry, quite frankly that’s pulling the pin out of the grenade,” he said at a conference on Tuesday held in conjunction with the New York International Auto Show. “I don’t believe the U.S. economy can run out of the room fast enough if that happens.”
Carter said in an interview he was optimistic the Trump administration would decide against tariffs, yet “uncomfortable” given the president’s decision last year to impose tariffs on steel and aluminium imports.
Trump ran for office in 2016 on a protectionist platform aimed at shoring up U.S. manufacturing jobs. He has said in the past he was considering tariffs on autos and auto parts of up to 25 percent.
In February, the U.S. Commerce Department sent recommendations to Trump, which auto industry officials expect to include at least some tariffs on fully assembled vehicles or on critical technologies and components related to electric, automated, connected and shared vehicles.
Such tariffs would have a deeper impact on car prices and consumers than earlier metals tariffs that were imposed. The steel and aluminium tariffs cost Detroit automakers General Motors Co and Ford Motor Co $1 billion each and Fiat Chrysler Automobiles NV said they could add up to $350 million in costs in 2019.
Trump is supposed to make a decision by mid-May, but some officials think the administration will find a way to delay final action, using the threat as leverage to try to win concessions on autos in trade talks with Japan and the European Union.
Joe Eberhardt, chief executive of Jaguar Land Rover North America, said a 25 percent tariff on all imported vehicles would cost the company “billions.” If the tariffs were on parts, it would also hit U.S. automakers hard, he noted.
“We just hope that reason will prevail,” he said.
Toyota and other automakers have been lobbying heavily to block any new tariffs on imported vehicles, arguing the industry’s global supply chain is so intertwined that tariffs would raise prices, hurt sales and thus damage the economy.
IMPACT ON PRICES
At a conference held ahead of the New York auto show this week, IHS Markit’s chief U.S. economist, Joel Prakken, forecast 2019 U.S. new vehicle sales of 16.8 million units, down about 500,000 units from 2018 but still high historically.
However, tariffs could reduce sales by another 2 million vehicles and shave half to two-thirds of a percentage point off U.S. gross domestic product, he said.
“It would be horrible for the automotive industry, it will be horrible for consumers and it will be horrible for the U.S. economy,” said Fred Diaz, the U.S. chief executive of Mitsubishi Motors Corp.
In one example, Carter said 72 percent of the parts for the Camry sedan that Toyota makes in Kentucky come from U.S. suppliers, but 28 percent are imported. A 25 percent tariff would cause that car’s price to rise $1,800 overnight.
“There is no such thing as a 100 percent U.S. vehicle,” he told Reuters.
According to industry estimates, broad tariffs could add an average of $4,000 to a new car’s sticker price.
Nissan Motor Co Ltd’s North American chairman, Jose Valls, said the automaker has “invested very heavily in the U.S. and they (the Trump administration) need to take into account our customers and our employees.”
“We’ll adjust,” Valls said. “But we’re not taking decisions on things that haven’t been finalised yet.”
Mitsubishi’s Diaz said industry groups are lobbying hard against the tariffs.
“The feedback is that we’re being heard,” he said. “But fundamentally, how do you really know?”
(Reporting by Nick Carey and David Shepardson in New York; Editing by Ben Klayman and Matthew Lewis)