Major US carmakers fear Trump’s new taxes

NEW YORK: Major carmakers are bullish on the outlook for the US 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 per cent on car and auto parts imports?

The industry is in “wait- andsee mode,” but the tariffs would be a bad idea, Bob Carter, head of US sales at Toyota Motor Corp, told Reuters.

“If the tariff happened on the auto industry, quite frankly that’s pulling the pin out of the grenade,” he said at a conference held in conjunction with the New York International Auto Show. “I don’t believe the US 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 US manufacturing jobs. He has said in the past he was considering tariffs on cars and vehicle parts of up to 25 per cent.

In February, the US 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

If the tariff happened on the auto industry, quite frankly that’s pulling the pin out of the grenade. I don’t believe the US economy can run out of the room fast enough if that happens. Bob Carter, head of US sales at Toyota Motor Corp,

tariffs that were imposed. The steel and aluminium tariffs cost Detroit carmakers General Motors Co and Ford Motor Co US$ 1 billion each and Fiat Chrysler Automobiles NV said they could add up to US$ 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 vehicles in trade talks with Japan and the European Union.

Joe Eberhardt, chief executive of Jaguar Land Rover North America, said a 25 per cent tariff on all imported vehicles would cost the company “billions.” If the tariffs were on parts, it would also hit US carmakers hard, he noted.

“We just hope that reason will prevail,” he said.

Toyota and other carmakers 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.

At a conference held ahead of the New York auto show this week, IHS Markit’s chief US economist, Joel Prakken, forecast 2019 US 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 two million vehicles and shave half to twothirds of a percentage point off US 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 US economy,” said Fred Diaz, the US chief executive of Mitsubishi Motors Corp.

In one example, Carter said 72 per cent of the parts for the Camry sedan that Toyota makes in Kentucky come from US suppliers, but 28 per cent are imported. A 25 per cent tariff would cause that car’s price to rise US$ 1,800 ( RM7.560) overnight.

“There is no such thing as a 100 per cent US vehicle,” he told Reuters.

According to industry estimates, broad tariffs could add an average of US$ 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 US 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?”