How are auto makers going to handle tariffs?

[StevenC56]

Ok. The goal is to bring manufacturing jobs back to the United States. Something that would benefit millions of “middle class” Americans. Particularly in “rust belt” communities that were ravaged by NAFTA. Tariffs have pros and cons. The ideal situation is to use the threat of tariffs as leverage to negotiate better trade deals to bolster US manufacturing. Which is probably what will happen. I hope this has helped enlighten you.

And how long does it take to move companies like Ford/GM who have an assembly plants in Mexico and Canada to setup new plants in the US and start production? Years I'll bet. And who pays for the cost of building and setting these plants up? Us again, so how does that make sense? And how does bullying friendly alliance countries work out? They are already retaliating. Oh, that's right, somebody said he's dealt with bullies his entire life, and they are always the weakest person in the room LOL.

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[SonicBlue]

And how long does it take to move companies like Ford/GM who have an assembly plants in Mexico and Canada to setup new plants in the US and start production? Years I'll bet. And who pays for the cost of building and setting these plants up? Us again, so how does that make sense? And how does bullying friendly alliance countries work out? They are already retaliating. Oh, that's right, somebody said he's dealt with bullies his entire life, and they are always the weakest person in the room LOL.

Well, you’ve obviously got this all figured out, then. No point in even trying, really. Carry on!

 

[DennisD]

Ok. The goal is to bring manufacturing jobs back to the United States. Something that would benefit millions of “middle class” Americans. Particularly in “rust belt” communities that were ravaged by NAFTA. Tariffs have pros and cons. The ideal situation is to use the threat of tariffs as leverage to negotiate better trade deals to bolster US manufacturing. Which is probably what will happen. I hope this has helped enlighten you.

In an ideal World, yes you are correct.

Many of the people that supported this man are living paycheck to paycheck though. You and I (I am guessing) will be fine. The masses that voted for him, not so much.

In this debate, I am hoping you are correct and I am wrong.

 

[E90alex]

Ok. The goal is to bring manufacturing jobs back to the United States. Something that would benefit millions of “middle class” Americans. Particularly in “rust belt” communities that were ravaged by NAFTA. Tariffs have pros and cons. The ideal situation is to use the threat of tariffs as leverage to negotiate better trade deals to bolster US manufacturing. Which is probably what will happen. I hope this has helped enlighten you.

That’s great as a sound bite or headline. USA! USA! USA! But in reality the cause and effect is not that simple.

It may have worked back in the day when the foreign factories didn’t exist yet, companies would Have course build a factory in a country that’s not tariffed. But they do exist already and have been pumping out products with existing supply chains for decades.

The US also simply does not have all the natural resources necessary to source and make everything within our borders. So things will have to be imported at some point.

There are no existing factories and supply chains to support moving all production to the US. To establish all of that will take billions of dollars in investments and at least several years. Who’s going to pay the cost of these investments? Customers in the form of higher prices.

The cost of paying American workers will be significantly higher than places like Mexico and especially China. Which will also significantly increase the price of products.

The resulting price of goods from moving all production to the US will probably be just as much if not more than just paying the tariffs. Why would a company invest billions of dollars to move manufacturing when they can just pass on tariffs to the customer without extra work?

Especially considering how fickle this administration has been. Why would a company invest billions in new factories when the tariffs may be reversed in a few days/weeks/months or at the latest by the next administration in a few years? The new factories wouldn’t even be done by the time his term is up.

 

[SonicBlue]

That’s great as a sound bite or headline. USA! USA! USA! But in reality the cause and effect is not that simple.

It may have worked back in the day when the foreign factories didn’t exist yet, companies would Have course build a factory in a country that’s not tariffed. But they do exist already and have been pumping out products with existing supply chains for decades.

The US also simply does not have all the natural resources necessary to source and make everything within our borders. So things will have to be imported at some point.

There are no existing factories and supply chains to support moving all production to the US. To establish all of that will take billions of dollars in investments and at least several years. Who’s going to pay the cost of these investments? Customers in the form of higher prices.

The cost of paying American workers will be significantly higher than places like Mexico and especially China. Which will also significantly increase the price of products.

The resulting price of goods from moving all production to the US will probably be just as much if not more than just paying the tariffs. Why would a company invest billions of dollars to move manufacturing when they can just pass on tariffs to the customer without extra work?

Especially considering how fickle this administration has been. Why would a company invest billions in new factories when the tariffs may be reversed in a few days/weeks/months or at the latest by the next administration in a few years? The new factories wouldn’t even be done by the time his term is up.

Once again, nailed it. Obviously we shouldn’t even try. Just too hard.

 

[Teslaeata]

Wait! I got this one. Carmakers will either (a) pass the costs on to the buyer, or (b) pass the costs on to the buyer, or (c) pass the costs on to the buyer.

It’s always the buyer, they (we) pay the cost of the delivered product plus a profit margin for the seller.

It’s the way it works.

Only thing is, I suspect the Chinese could cut their prices pre-tariff so much that the price including the tariff the buyer pays will still undercut your own products for the hell if it because they can, and we & you can’t because of our industrial relations and local commercial conditions!

 

[Kamuelaflyer]

Wait! I got this one. Carmakers will either (a) pass the costs on to the buyer, or (b) pass the costs on to the buyer, or (c) pass the costs on to the buyer.

Pretty much, if they can anyway. Unfortunately, as you’re aware, that’s not how pricing works. Many people seem to believe that manufacturers set price based upon cost plus a profit margin. That’s not how any of this works. (Insert classic meme here).

Car makers will continue to sell their cars at the highest price they can get for that car regardless of cost. It’s like that for all products. Ford will sell the Mach-e for what it can get whether that’s a profit or loss. If the loss becomes unsustainable for any reason, the product is discontinued.

If any tariffs are of sustained duration, Ford will have tough choices. The Bronco Sport, Maverick, and Mach-e are all assembled in Mexico. Are new assembly plants feasible? What are the lead times? Same question for refurbishing closed plants? Are there plants in the USA that could quickly be expanded to build all of these or any of them? If not all, which do you move to the USA and which are not?

The models left behind are in a precarious position if they’re not current profitable. How long would anyone expect Ford (GM, Toyota, etc) to sustain an even larger loss on a product before they pull a plug on US sales or pull the plug altogether?

Note that in the above we haven’t even mentioned parts availability. Or steel and aluminum for stamping.

On top of that we have the issue on the far side of this impending trade war. NAFTA and USMCA are dead. Both provided no tariffs in almost all trade between the three countries. They will no longer be feasible on the back end as US credibility is now pretty much zero, especially considering which administration negotiated USMCA. Uncertainty in law is not a good thing for businesses. Uncertainty in international relations lasts multiple generations.

So what would you (figuratively) do? And how long before you make those decisions? Does anyone really want to be in Bill Ford’s or Jim Farley’s position right now? How about after 6 months or a year of tariffs?

edit: Spelling, grammar, syntax

 

[DennisD]

Pretty much, if they can anyway. Unfortunately, as you’re aware, that’s not how pricing works. Many people seem to believe that manufacturers set price based upon cost plus a profit margin. That’s not how any of this works. (Insert classic meme here).

Car makers will continue to sell their cars at the highest price they can get for that car regardless of cost. It’s like that for all products. Ford will sell the Mach-e for what it can get whether that’s a profit or loss. If the loss becomes unsustainable for any reason, the product is discontinued.

If any tariffs are of sustained duration, Ford will have tough choices. The Bronco Sport, Maverick, and Mach-e are all assembled in Mexico. Are new assembly plants feasible? What are the lead times? Same question for refurbishing closed plants? Are there plants in the USA that could quickly be expanded to build all of these or any of them? If not all, which do you move to the USA and which are not?

models left behind are in a precarious position if they’re not current profitable. How long would anyone expect Ford (GM, Toyota, etc) to sustain an even larger loss on a product before they pull a plug on US sales or pull the plug altogether?

Note that in the above we haven’t even mentioned parts availability. Or steel and aluminum for stamping.

On top of that we have the issue on the far side of this impending trade war. NAFTA and USMCA are dead. Both provided no tariffs in almost all trade between the three countries. They will no longer be feasible on the back end as US credibility is now pretty much zero, especially considering which administration negotiated USMCA. Uncertainty in law is not a good thing for businesses. Uncertainty in international relations lasts multiple generations.

So what would you (figuratively) do? And how long before you make those decisions. Does anyone really want to be in Bill Ford’s or Jim Farley’s position right now? How about in 6 after 6 months or a year of tariffs?

Well said.

 

[George Knighton]

It’s impossible even for the most intelligent in economics to predict. Trump is so erratic with his moves you never know or can trust what he will do next. Surely can’t take him at his word.

That's the biggest single problem, that we do not know what this administration is going to do until it is happening.

The Mach-E is an unusual case. I read in another venue that the cars cross the border a couple of times before they are finished.

 

[ChehRob]

And not often discussed, it benefits the economy of the US to have a strong economy in Canada and Mexico. Hugely.

 

[StevenC56]

Somebody doesn't understand how things actually work, Bigly.

 

[Kamuelaflyer]

The Mach-E is an unusual case. I read in another venue that the cars cross the border a couple of times before they are finished

Parts more so than partially or fully assembled cars, but it’s not in the slightest bit unusual.

 

[Stanmckinney]

We live in a global economy. That is reality. Tariffs are not going to change that but only increase prices. It is naive to think otherwise.

 

[Jimrpa]

This isn't hard to understand. They'll pass the cost onto consumers. I would, but first I would protest the tarrifs to abolish me of having to raise prices. Once tarrifs are in place then the cost increase takes place, but I relay the reasoning and actions I did to portray more positive outcome. That's what they're essentially doing.

Why do you think Tim Cook spends so much time at Mar a Lago? It certainly isn't the exquisite dining experience or the intellectually stimulating conversations with filler-and-plastic filled palm beach socialites and the decrepit old lechers they prey on ?

 

[Jimrpa]

And how long does it take to move companies like Ford/GM who have an assembly plants in Mexico and Canada to setup new plants in the US and start production? Years I'll bet. And who pays for the cost of building and setting these plants up? Us again, so how does that make sense? And how does bullying friendly alliance countries work out? They are already retaliating. Oh, that's right, somebody said he's dealt with bullies his entire life, and they are always the weakest person in the room LOL.

We already know the answer to that. Just look at the timeline for Blue Oval City. Individual new car programs stretch for years from the initial inception to vehicles driving off the showroom floor. Ford will have to make adjustments for the US market (whether that's simply increasing costs on a particular product that is impacted by tariffs, increasing costs across the board to reduce the cost increases for products impacted by tariffs, exiting certain markets, or possibly retooling existing production facilities). None of us know how Ford will respond, but I would expect that Ford (and other US auto makers) are trying to very quietly lobby the administration for some sanity.

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