CommentaryJun 22nd, 2018

What Are the Potential Impacts of Steel and Aluminum Tariffs on Dealers?


President Trump’s recent tariffs on steel and aluminum imports have posed serious drawbacks for the automotive industry, particularly for car dealers.

While the aim of this recent policy is to keep American jobs by adding taxes to goods imported from other countries, it could have a more detrimental effect. In fact, it could end up costing jobs and dropping sales significantly.

The 25% tariff on imported steel and 10% tariff on imported aluminum will be reflected in car prices. According to the Wall Street Journal, vehicles bought in U.S. showrooms are expected to see an average price increase of $300.

Ford, an American favorite, will experience the higher end of this increase on its F-series pickup trucks. Because the aluminum Ford uses for this line comes from Canada, it’ll likely see a 1% overall increase in cost.

What this means for car and truck sales

As a dealer, you should be prepared to see car sales decrease as a result of these rising prices. LMC Automotive predicts that U.S. auto sales will fall by as many as 2 million vehicles this year.

Some automakers may be willing to absorb half the cost of these tariffs, as opposed to passing them on fully to consumers, but this will still only lessen the blow. On the plus side, used car dealers are sure to see a relatively sharp increase in sales, with new cars at the mercy of additional fees imposed by the tariffs.

If you’re a used car dealer, using this recent development to your advantage in advertising campaigns might be wise. The premise of your marketing and advertising efforts could be your untouched pricing. In combination with higher-than-ever interest rates, car and truck sales are likely to see a sharp decline after nearly a decade of steady growth.

Over the past few months, in anticipation of this policy alone, car sales have flattened. Automakers and new-vehicle dealerships should be prepared to either offer year-round promotions or absorb a portion of the tariff-induced cost inflation in order to spur more sales. In the meantime, nearly 19,000 companies have appealed to the Commerce Department for exemptions to the tariffs.

What this means for jobs

A report from the Council on Foreign Relations estimates that the tariffs will kill 40,000 auto jobs, as well as nearly one-third of the steel industry’s workforce.

This statistic will undoubtedly trickle down to jobs at car dealerships, and not just in manufacturing. With vehicle sales decreasing, many dealerships may need to make cuts to their sales and support staffs.

According to the American International Automobile Dealers Association (AIADA), a majority of the 9,600 international nameplate auto dealers are family businesses.

As these tariffs will wield a global impact, and some of these family dealerships could even go out of business.

The skyrocketing cost of steel will likely cause fewer goods to be manufactured in the U.S., leaving many individuals in vehicle production out of jobs too.

A final word

Vehicle prices are going up, jobs are going to be cut, and top automakers should prepare for serious drops in their stock prices.

Toyota, General Motors, and other automakers have seen their shares drop between 3% to 4% in light of the news.

As a new-vehicle dealer, you may have little say in the matter. There are a few things you can do, however.

The first step is to revamp your marketing/advertising strategy, highlighting selling points of your vehicles and dealership services, and giving special attention to your used car inventory, as that will be the area impacted most positively.

Also, be sure to inform your employees of how they could be impacted should sales see a serious drop.

Lastly, weigh the opportunity cost of absorbing at least half of the additional fees/taxes imposed on new vehicles by these tariffs. If it means maintaining steady new car sales, it could be quite a payoff.

Ellie Batchiyska is a writer for Federal Steel Supply, Inc., a top U.S. commercial steel pipe supplier and distributor.

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