U.S. Auto Industry Prepares for a Major Slowed Down Amid Fallout from Tariffs : Automotive Addicts
Automotive
The American auto market may be approaching its most significant downturn since the COVID-19 pandemic, and it’s not just because fewer people are walking into showrooms. The combination of changing international trade policies and supply-chain dependencies could trigger a noticeable drop in vehicle sales and production, with ripple effects which could reshape automotive landscape as far into 2025. Analysts predict that the global vehicle production will drop by over 1.55 million units in 2019. S&P Global Mobility estimates that the total production of new vehicles could reach 87.91 millions units by 2025. This would represent a 2 percent decrease from this year. This may seem like a small drop, but it’s the second annual decline and the biggest slump since the pandemic that brought the industry to near a standstill early in 2020. The recent auto tariffs imposed by the Trump Administration are a significant part of the puzzle. In April, the Trump administration imposed a 25% tax on all auto parts and vehicles that were not made in the U.S. This has led to a shift in the way foreign automakers conduct business with America. Audi, Aston Martin and Land Rover — which all build their vehicles abroad — have begun to reduce U.S. imports. Instead, they’re leaning on existing stateside inventory and reevaluating their long-term strategies.
To put things in perspective, Japan alone exports about 1.4 million vehicles to North America every year. The estimated 1.55 million vehicles shortfall could wipe out the entire pipeline with wide-ranging consequences for consumers and dealerships. Volvo, Honda Mercedes-Benz and Nissan all have plans to increase their U.S.-based production or open new North American plants. Nissan confirmed, for example, that it would build the Rogue here in the U.S. moving forward. These are long-term fixes, but as industry insiders admit, they could take many years to bear fruit. Even American-made vehicles rely on a lot of imported parts, sometimes up to 60%. Tariffs and rising labor cost could actually make U.S. built vehicles more expensive, not cheaper, than imported cars. The impact of a decline in sales and production is not just a statistic for the industry; it also directly affects the workforce. S&P Global estimates that U.S. vehicle sales will drop by up to 3 percent in 2018, in line with the 9 percent projected decline in North American production. This type of contraction leads to job losses. Stellantis, for example, announced temporary layoffs of 900 employees at five U.S. plants shortly after tariffs were implemented, and halted production at two facilities in Mexico and Canada. This was in response to a sharp drop of 14 percent in sales for Q1 over the previous year. The automotive industry must adapt quickly in order to avoid a prolonged slump. Buyers waiting for their next vehicle may find that there are fewer choices on dealer lots and that the prices of those options remain higher.
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