Cars and Drivers

Will Tariffs Be the Death of America's Car Sales Boom?

Douglas A. McIntyre

Published: July 18, 2018 6:35 am

Last Updated: January 11, 2020 8:52 pm

Tariffs on vehicles that are imported or have imported parts could rise by thousands of dollars. It is the nature of most competition that car companies with U.S.-made products will use the higher prices as cover to raise prices on their own. Why sell a car cheap if the market is used to more expensive ones. The American car market has reached above 17 million for three full years. Higher car prices could kill that and cripple the industry.

It is possible that car companies will keep prices of American-made cars low. There is a temptation to do that to pick up market share. Weighing against that is the opportunity for manufacturers to increase what are often tight margins, particularly on small, less expensive cars. As German or Japanese imports each cost thousands more, the temptation to use this as a cover to increase all car prices may be irresistible, particularly to public companies that want to show investors that gas-driven cars sold on a mass basis are not already a thing of the past.

Americans may reject higher priced cars no matter where they are made. If 50 million new cars have been sold in the United States over the past three years, all these are relatively new. This is particularly true because cars and light trucks are much better made than they were in past decades. The average number of years a car still being driven has been on the road is approaching 12. The market for new cars may be close to saturated even without price increases.

Car companies also need the U.S. market to be more profitable. Cars sales in the European Union have reached record levels. So have sales in China, although the growth of the largest car market in the world has flattened. America, which was once the slow growth market, has emerged as one, if not the most important, market.

Can car makers resist the opportunity to raise prices as tariffs kick in and force some manufacturers to push up prices because they have no other choice? If not, the record car sales period may end in the United States.

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