Despite tariffs impacting automakers, car buyers managed to avoid increased prices, according to a recent report.
In the ever-changing landscape of international trade, automakers have been grappling with the impact of tariffs on their operations. Faced with the resilience of the American consumer and the need to keep production lines running without resorting to restructuring, many automakers have chosen to absorb the financial hit of tariffs rather than passing the costs on to customers [1][3].
The decision to absorb tariffs was influenced by several factors. Demand sensitivity played a significant role, as with demand already softening, raising vehicle prices risks further reducing sales. The complexity of supply chains, where many vehicles and parts cross U.S.-Mexico-Canada borders multiple times, also played a part. Tariff exemptions for vehicles meeting North American content and wage rules provided some relief, enabling manufacturers to partially mitigate the accumulated tariffs [1].
The volatile and uncertain nature of tariffs, with starts, stops, reversals, and ongoing negotiations, also deterred automakers from adjusting consumer prices. Moreover, the desire to preserve profit margins and avoid immediate consumer price shocks, combined with fierce market competition and efforts to avoid losing market share, further encouraged automakers to keep incentives stable rather than skimp on discounts [3].
As a result, the average list price of a new vehicle on CarGurus' site is now less than it was when the tariffs went into effect. This strategic approach has helped maintain demand and, according to Kevin Roberts of CarGurus, with prices not severely escalating and sales still strong, 2025 might end up being better than initially expected [4].
Recent developments in trade agreements offer more clarity. The White House has announced trade agreements with the European Union, Japan, Indonesia, and the Philippines, providing more certainty on tariff levels. Meanwhile, Trump's announcement of a 90-day suspension of import tariffs on Chinese goods may not lead to a surge of Chinese-made vehicles in the U.S. in the near future, posing less immediate competition [2].
On the domestic front, Japan has agreed to lift restrictions on importing U.S.-made vehicles and promises to invest $550 billion in related industries at the direction of the U.S. government. The agreement sets the tariff level at 15% on vehicles imported from that country [5].
However, the cost of absorbing tariffs has not come without its consequences. General Motors Co. and Ford Motor Co. have reported hits of $1.1 billion and $800 million to their respective bottom lines due to the tariffs [6]. Whether this cost pass-through will happen eventually if tariffs persist remains to be seen.
In conclusion, automakers' strategic decisions to absorb tariffs have helped maintain competitive pricing and demand in a volatile trade environment. As trade policies continue to evolve, it will be interesting to see how these decisions impact the industry in the long run.
References: 1. Source 1 2. Source 2 3. Source 3 4. Source 4 5. Source 5 6. Source 6
In the midst of adjusting to tariffs, automakers like General Motors and Ford have prioritized absorbing these costs, choosing not to increase prices on new sports cars or other new cars. Despite the financial hit, these automakers have maintained their sales figures, creating a possible advantage in the market over competitors who may struggle with raising prices due to tariffs.
