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Impact of Tariffs on Automotive Industry Strategies

LONDON/DETROIT – With the recent imposition of 25% tariffs on foreign car imports by the Trump administration, various automakers are adjusting their strategies to manage the potential financial impact on consumers. While manufacturers with substantial inventories are in a stronger position to navigate these challenges, Toyota’s lower levels of stock may compel it to raise prices earlier than its competitors.

Following the announcement of the tariffs, which are projected to significantly increase vehicle prices, many consumers are rushing to dealerships to make purchases before any price hikes take effect. According to data from automotive services provider Cox Automotive, as of March 17, Toyota held just 32.7 days’ worth of vehicle supply—considerably below the industry average of 89 days—and specifically had only 20.9 days of inventory for its highly sought-after RAV4 SUV.

Despite this, Toyota has stated that it has no immediate plans to raise prices in the U.S., with an executive analyst from Cox noting that the company can ramp up production at its Kentucky facility. However, the limitations presented by their low inventory levels could pose challenges.

Pre-tariff vehicles have gained significant market interest. For instance, a dealership in Connecticut advertised its inventory of 100 pre-tariff Fords, highlighting the urgency among consumers to purchase before the tariffs raise vehicle costs. Ford’s inventory levels were reported at 103.4 days, while Hyundai had 107.4 days of supply available.

To mitigate the tariff impact, automakers are racing to import as many finished vehicles as possible before the April 3 deadline, allowing them to qualify as pre-tariff models and avoiding immediate price increases amidst economic uncertainty. A source from a European automaker indicated that efforts were made to ship high-end models to the U.S. prior to the tariff deadline.

While the tariffs on finished vehicles will have a quicker effect, the 25% duties on parts like engines and transmissions will gradually influence the market. Analysts predict that the impact of these tariffs will begin to be felt within the industry by mid-April, with some estimating that prices could increase between 8% and 16% as dealers negotiate upfront profits and sales targets.

According to automotive analyst Mel Yu, imported components constitute 40% to 80% of U.S.-made vehicles, meaning that overall car prices will inevitably climb regardless of manufacturing location. The cost of higher-priced parts will also contribute to increased vehicle repair costs, leading to higher insurance premiums for consumers.

The short-term outlook favors automakers and dealers with ample inventories. Jim Seavitt, owner of Village Ford in Dearborn, Michigan, currently holds about 90 days of vehicle supply, providing a temporary buffer against the tariff repercussions. He emphasized concerns about auto parts costs over the influx of finished vehicles, anticipating potential long-term challenges if the tariff situation continues.

Most automotive manufacturers are keeping details about potential price increases close to the vest, although luxury brands are more transparent about passing on the costs to consumers. Companies like Mercedes-Benz are actively boosting their U.S. inventory to counteract the tariffs, recognizing the need to remain competitive in response to market changes.

In his analysis, economist Arthur Laffer noted that manufacturers with lower inventories would need to act swiftly to maintain profitability, suggesting that larger inventory holders could temporarily weather the storm but would eventually have to adjust their pricing strategies.

For Toyota, the necessity to raise prices may become urgent due to its inventory challenges. The company’s production of popular hybrids has been difficult, and industry experts predict a gradual increase in prices might occur starting in May as inventory stocks dwindle. Some analysts suggest that Toyota might leverage a weak yen to gain market share over competitors while navigating the tariff landscape.

Beyond Toyota’s situation, specific vehicle models could face heightened challenges due to their supply levels. Cox Automotive identified several models, including the Honda CR-V and Chevy Equinox, as particularly susceptible to the effects of the tariffs given their average supply of 51 days. A rush for pre-tariff vehicles could alter supply dynamics quickly, highlighting the shifting nature of the automotive market in response to policy changes.

Source
finance.yahoo.com