When a Republican sits behind the resolute desk in the Oval Office with a majority in both the House and Senate, it has historically been seen as being good for auto manufacturers.
But President-elect Donald Trump is not your typical President or politician. And that has the industry waiting to see if Trump will follow through on his campaign promises that will have an effect on the economics of building and selling cars.
At the forefront of concerns are tariffs, specifically the 25 percent tariffs on imports from Mexico and Canada. Trump said on social media that immediately after his Jan. 20 inauguration, he would sign “all necessary documents” to begin charging Mexico and Canada 25 percent tariffs unless illegal immigration and fentanyl trafficking are halted. During the campaign, Trump threw out the idea of a 100-percent tariff on Chinese cars built south of the border.
Tariif Costs
The reason that Trump has stated is that “in trade deficits, we’re losing massive—we don’t need their cars. You know, they make 20 percent of our cars. We don’t need that. I’d rather make them in Detroit. We don’t need the cars.”
Industry analysts expect increased import costs will leave OEMs with few choices: absorb the costs or pass them on to consumers.
“The cost will spread across all stakeholders: automakers, dealers and consumers,” said Erin Keating, executive analyst at Cox Automotive. “No one company is going to dump all of that expense directly on their consumers.”
Mexico, Canada Targeted
The top 10 car manufacturers with Mexican plants collectively built 1.4 million vehicles over the first six months of 2024, with 90 percent heading across the border to U.S. buyers. And Canada has extremely close with ties in the auto industry, where parts go back and forth between Michigan and Ontario. A partnership that has grown in the three decades since NAFTA, critics have warned imposing tariffs like would hamper operations on both sides.
Component tariffs could add $600 to $2,500 per vehicle on parts from Mexico, Canada and China, according to estimates in a Wells Fargo analyst note. Prices on vehicles assembled in Mexico and Canada—which account for about 23 percent of vehicles sold in the U.S.—could rise $1,750 to $10,000.
Ford CEO Jim Farley recently noted that “a lot of our supply chain depends on countries from around the world, and so tariffs are really challenging for any company.”
EV Incentives Rollback
Besides tariffs, the fate of the electric vehicle (EV) industry is uncertain. Trump has repeatedly derided incentives and mandates from the Biden Administration to grow the EV market over the last four years and has generally been hostile to global electrification.
Vice President-elect J.D. Vance has floated the idea of repurposing EV tax credits for gas vehicles, and key Trump advisors, including Tesla owner Elon Musk, have stated their intent to nix the $7,500 consumer tax credit for EVs. Musk noted the incentive would hurt Tesla’s competitors more than his own company.
“Trump will also likely make changes to U.S. emissions requirements, and we expect significant reductions in battery-electric vehicle (BEV) volumes/market share and adjustments in electrification mix. In 2030, we expect the US BEV mix to reach about 30 percent, compared with prior projections for about 40 percent in that year,” wrote Stephanie Brinley, Associate Director, AutoIntelligence, S&P Global Mobility.
Fraley on IRA Positives
Farley is pushing for Trump and lawmakers to realize the unintended negative effects of repealing the Inflation Reduction Act (IRA) production tax credit.
“It would be a significant impact for our industry if it goes away,” Farley said. “Many of our plants in the Midwest that converted to EVs depend on the production credit. We would have built those factories in other places, but we didn’t. The reason we’re building that in Michigan is because of the production tax credit. It changed the math for a lot of investments. That’s the key focus for us.”
There are areas where auto manufacturers and dealers are supporting the Trump Administration, specifically a reduced regulatory state. While experts can only speculate on the incoming administration’s changes, several areas have already been highlighted by Trump and his team.
Industry Alignment with Trump
During his second term, the Trump Administration is expected to challenge to California’s zero-emissions requirements, despite several major OEMs already committing to meet them. This fight will likely take years, and as it unfolds.
Another is the FTC’s Combatting Auto Retail Scams (“CARS”) Rule whose implementation is currently paused as it makes it way through the courts. The CARS Rule aimed to address bait-and-switch and other unfair tactics used by dealers, requiring transparent disclosure of costs, fees, and vehicle information, and requiring express consent from consumers.
Unpopular with dealers, the National Automobile Dealers Association (NADA) has challenged the FTC’s authority to enact the rule in a case that was recently heard by the conservative and business friendly Fifth Circuit. The petitioners’ have argued the CARS Rule represents an overstep by the federal government.
Hope from Dealers
Trump takes office as dealers are increasingly optimistic about the future, according to the Q4 2024 Cox Automotive Dealer Sentiment Index (CADSI). The index rose 12 points to 54 in Q4 from the previous quarter. One year ago, the index stood at just 41, one of the lowest readings in its history.
“The recent resolution of political uncertainty following the presidential election has cleared the path for a more optimistic outlook on future auto market conditions,” said Jonathan Smoke, chief economist at Cox Automotive, in a statement with the report’s release. “Coupled with the potential for supportive measures such as tax rebates and the possibility of lower interest rates, dealers are feeling more hopeful about the road ahead as we move into 2025.”
Scott Kunes, COO of Kunes Auto Group, offered dealers are excited to see what’s coming down the pike in the next administration, particularly surrounding EVs and Trump’s platform of deregulation.
“I think most of us have been screaming from the rooftops a little bit that we can’t force this EV transition,” Kunes said. “And while we want to be good partners with our manufacturers, and we want to provide our consumers what they want, the [Biden] administration forcing this EV transition—not only on the manufacturers, but us as dealers—has had a pretty serious detrimental effect to our business.”