The auto industry is warning that US sales declines, which have become routine over the past year, may continue thanks to the tariffs President Donald Trump plans to slap on steel and aluminium imports.
Toyota Motor Corp, which plans to build a new $1.6bn factory in Alabama with Mazda Motor Corp, said the administration’s decision will “adversely impact” auto companies by raising costs and prices of cars and trucks sold in the US. That’s even as more than 90% of the steel Asia’s biggest carmaker needs in the US is from the country.
Trade groups representing automakers including General Motors Co and Toyota, plus parts suppliers like Robert Bosch GmbH, tried to warn the Trump administration of unintended consequences before the president said on Thursday he plans to order tariffs of 25% on imported steel and 10% on aluminium. Asian automakers’ shares declined while US carmakers – already slipping because of weak February sales – extended their drop after Trump’s comments.
“These proposed tariffs on steel and aluminium imports couldn’t come at a worse time,” said Cody Lusk, president of the American International Automobile Dealers Association. “Auto sales have flattened in recent months, and manufacturers are not prepared to absorb a sharp increase in the cost to build cars and trucks in America.” Honda Motor Co, which declined to comment on the administration’s move, led the drop in shares of Asian carmakers.
Five of the six biggest car manufacturers on Thursday posted lower February US deliveries than a year ago. GM shares slumped 4% in New York, while Ford Motor Co dropped 3% and Fiat Chrysler fell 2.8%.
The average car includes about $830 of steel and $400 of aluminium, according to a February 26 analysis by Colin Langan, an analyst with UBS. He projected that Ford’s raw material costs were already going to rise by $1bn this year, and said on Thursday that the tariffs would add another $300mn. GM’s raw material costs, already seen climbing $800mn, would rise an additional $200mn from the import measures. Langan characterised rising raw material costs as “manageable.”
Charlie Chesbrough, senior economist for researcher Cox Automotive, estimates the tariffs Trump proposed would add about $200 to the total price of a vehicle. “It’s unfortunate because it comes at a time when there are already fears about inflation,” he said in an interview. “This is only going to add fuel to that fire.”
Toyota said it buys sheet steel from United Steel Steel Corp, ArcelorMittal and AK Steel Holding Corp, and sheet aluminium from Arconic Inc, Novelis Corp and a venture of Constellium NV and UACJ Corp.
Carmakers and suppliers getting most of their aluminium and steel from US producers may not shield them from rising costs, said Kristin Dziczek, director of the industry, labour and economics group at the Center for Automotive Research in Ann Arbor, Michigan. That’s because those producers also use imported material, which they process into other steel or aluminium products, she said.
While the Trump administration did the auto industry a favour by cutting taxes late last year, the tariffs have the potential to “nullify many of the benefits” by boosting vehicle prices, said John Bozzella, president of the Association of Global Automakers. The group represents companies including Japan’s Toyota, Germany’s Bosch and South Korea’s Hyundai Motor Co.
“Investments earmarked for new products and plants will instead be funnelled to pay for rising steel and aluminium prices used in existing products and facilities,” Bozzella said in a statement released on Wednesday.
Global Automakers said that President George W Bush’s 2002 steel tariffs cost the economy 200,000 jobs, including 30,000 in Michigan, Ohio and Pennsylvania.
Even without the new tariffs, rising metal prices have been a problem for Ford. The second-largest US automaker said in January that 2018 would be a “bad year” as costs surge. The price of steel, Ford’s biggest commodity purchase, has jumped about 33% since the start of last year. Aluminium, used for the bodies of F-Series pickups, is up more than a quarter.
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