It was anything but routine when President Donald Trump last week declared war on the auto industry by announcing a 25% tariff on car parts. This decision will raise the price of auto repair nationwide. The tariffs are supposed to be a sign that domestic manufacturing should be sufficiently incentivized. They might unintentionally increase costs for the consumers who rely on mass vehicle maintenance and repair service. The tariffs on automobiles will take effect starting on April 3rd. Tariffs on components will be close behind—no later than May 3. Some auto parts made in line with the United States–Mexico–Canada Agreement (USMCA) will get limited exceptions. The greater supply chain may be in for a world of hurt still.
Global Supply Chain Faces Disruption
The automotive supply chain is a very complex global network. That’s because parts frequently cross international borders several times before arriving at their final destination—U.S. dealerships and repair shops. This delicate process would be immediately upended by the upcoming tariffs, according to industry experts. They’re not a blanket ban on foreign content; the tariffs target specific foreign-produced content. In fact, they hone in on parts originating from Canada and Mexico.
David Doyle, head of economics at Macquarie noted that the suppliers would face significant administrative burdens with the new regulations. He thinks these complexities may pose major barriers for them.
“It is unclear administratively how straightforward this process will be to navigate for auto suppliers, adding to uncertainty,” – David Doyle, head of economics at Macquarie.
Impact on Consumer Costs
The new proposed tariffs would directly raise costs, particularly on Americans most in need of affordable options. Mark Fields, former chief executive of Ford, noted that different automakers would experience varying degrees of impact from these tariffs. When RI expenditures on auto repair bills are expected to increase due to higher auto parts costs, consumers will be adversely affected by the proposed duties.
Skyler Chadwick, director of product consulting at Cox Automotive, pointed to savings this technology could bring in repair bills.
“Tariffs will most certainly cause higher costs in parts, which can constitute up to 40% or more of a repair bill,” – Skyler Chadwick, director of product consulting at Cox Automotive.
The average cost of motor vehicle maintenance and repairs in the U.S. has sky-rocketed by 38% since March of 2020. If inflation persistently keeps climbing, consumers will be forced to reconsider their buying habits.
Wolfgang Alschner, a professor of economic law at the University of Ottawa, had one particularly clever idea. He contended that suppliers unaffected by the tariffs could raise their prices to increase their profit margins, particularly in an environment of lower supply.
“Even unaffected suppliers may raise prices to expand margins amidst a reduction in overall supply,” – Wolfgang Alschner, a professor of economic law at the University of Ottawa.
Long-term Consumer Behavior
And lastly, the risk of increased auto repair costs short-term has the ability to affect consumer behavior long-term. Other analysts expect American drivers to retain their existing cars and trucks for more years. Some think that it will largely be replaced by used car purchases, potentially increasing the price of used cars. Retail Equity Research at UBS, Michael Donovan, stressed this as a major change in consumer behavior.
“US consumers will likely hold on to their existing cars for longer, and may switch to buying used cars, so used car prices will rise,” – UBS’ Donovan.
Chadwick continued to make the case, based on months spent surveying debris imported from jukils and chop shops around the world.
“The parts department in any dealership or repair shop is a United Nations of parts, sourced from all over the world,” – Chadwick.
As consumers get used to a new world, service managers and service advisers will likely see more questions about pricing.
“If you notice any significant price hikes in the short term, ask the service manager or adviser to explain them,” – Chadwick.
“Ask questions about the exact costs of parts versus labor for all repairs and maintenance,” – Chadwick.