Trump’s tariffs would devastate auto sector, raise consumer costs: industry leaders

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This article was published 27/11/2024 (628 days ago), so information in it may no longer be current.

Auto industry leaders say U.S. president-elect Donald Trump’s threat of tariffs on Canadian goods would have devastating effects for the sector, forcing both Canadian and U.S. consumers to pay higher vehicle prices.

Flavio Volpe, president of the Automotive Parts Manufacturers’ Association, said it’s unreasonable to apply such a tax to auto parts, which may cross the border up to eight times before ending up in a finished vehicle.

He noted the auto industry works with single-digit profit margins.

“A tariff of 25 per cent is like talking about purple unicorns,” said Volpe in an interview.

“I think we need to ignore the number, because cars would cease to be made by American companies if that came into effect.”

Trump sparked backlash among Canadian business and political leaders after posting to Truth Social on Monday that he will sign an executive order imposing a 25 per cent tariff on all products coming to the United States from Canada and Mexico.

The incoming president said such a tariff would remain in place until Canada and Mexico stop drugs and people from illegally crossing the borders.

Global Automakers of Canada president and CEO David Adams said his organization had “obvious concerns” about the announcement.

“A 25 per cent tariff on all imports from Canada — the largest trading partner of the United States — will negatively impact jobs and livelihoods on both sides of the border across a number of key sectors of our economies. This would also be the case for the automotive industry,” said Adams in a statement.

“In our view, Canada must act swiftly and firmly to make the case that the U.S. and Canada are stronger and more competitive when we face the global challenges together, not apart.”

Volpe said any cross-border tax would increase the cost of components and raw materials that go back and forth between the neighbouring countries. That would lead to a slowdown in production and a supply shortage, prompting higher prices for customers at dealerships.

“Everybody would feel it,” he said.

“First, the American consumer would feel it. But it wouldn’t take too long before it would be shared by everybody, meaning everybody in Canada and Mexico as well.”

The average price of a new car was $65,913 in October 2024, according to data collected by Autotrader.ca. Under a “worst-case scenario” where the full 25 per cent tariff comes to fruition, the average price would jump to around $82,000, said Baris Akyurek, vice-president of insights and intelligence at AutoTrader.

Even with just a 12.5 per cent levy, the average price could reach around $74,000, he said, adding any increase in the cost of new cars would have a knock-on effect where demand would surge for used vehicles instead.

Despite the cost of used cars being on the decline — the average price in October was down 8.5 per cent year-over-year to $35,334 — Akyurek said that could see a reversal.

He called it a potential “double-whammy.”

“If the demand on the new side goes down, at some point we will see the impact on the used side, in terms of less supply,” he said.

“Therefore, the impact on prices would be potentially substantial.”

Daniel Ross, senior manager of auto industry insights at Canadian Black Book, said the threat comes at a time when Canadians are “already facing an affordability problem.”

“So when you’re talking about tariffs imposed on vehicles coming into our market, it would exacerbate that problem,” said Ross.

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“We know that the supply chain, the fuel cost, the products themselves, would all have to change in value in some way, shape or form, likely to be more expensive.”

During the U.S. election campaign, Trump had promised to introduce a universal 10 per cent tariff on all American imports — a pledge that would reduce the size of the Canadian economy by around one per cent, resulting in $30 billion per year in economic costs, according to previous modelling by the Canadian Chamber of Commerce.

Asked if he would consider any tariff level digestible for the Canadian auto sector, Volpe replied, “Zero is the maximum.”

“It’s simply because we’ve built this auto sector together,” said Volpe.

This report by The Canadian Press was first published Nov. 27, 2024.