The “Trump factor” has been a central element in debates concerning the future direction of the automotive industry.
From doomsday scenarios to promises of a bright future, the sector has been divided over what the new administration’s actions will yield.
Any changes to taxes and tariffs will have an impact on the industry. So will amendments to regulations, particularly those concerned with vehicle fuel economy and environmental policies. So what should automakers and auto dealers expect?
NAFTA, Mexico and Tariffs
Mexico has been a hot-potato issue ever since the beginning of Trump’s campaign. And it’s not only the wall he has threatened to build that has raised concerns, but also the possible overhaul of NAFTA.
The administration believes NAFTA has encouraged U.S. automakers to move production to Mexico, costing Americans jobs and hurting the U.S. economy.
But a change in import/export terms could lead to a jump in car prices and a potential trade war.
Revoking NAFTA entirely may not make sense from an economic point of view, as shown in this analysis by Bruegel. Given that Mexico imports a lot of the parts it uses to manufacture vehicles that are then exported back to the U.S., imposing a tariff could have consequences worse than leaving things as they are.
Yet, automakers still should brace for the possibility of either a partial or full renegotiation of the trade agreement to occur. That could help the U.S. economy or hurt it, if higher vehicle prices push some consumers out of the market.
Relaxing Emissions Standards
The Trump Admin. also has promised to look at federal greenhouse-gas-emissions regulations for cars and light trucks. With cars already in less demand than light trucks, manufacturers are facing the possibility of having to deal with an unfavorable mix as they look to meet fuel-economy targets expected to cost the auto industry $200 billion over the next 13 years.
Reopening the midterm review of CAFE standards does not guarantee manufacturers ultimately will get a better deal, but it does seem likely. This would lessen the burden on the industry and dealers at a time when some are struggling to sell the fuel-efficient cars they have in stock.
Trump also has indicated a willingness to cut corporate taxes to as low as 15% (from 35%) as part of an economic-stimulus package. The Center for Automotive Research says such tax cuts and programs could result in as many as 350,000 additional vehicles sold in 2017, an increase of 2% and likely setting a new record for the industry.
Will the administration live up to its promises? Leave us a comment, we’d like to hear from you.
Vic Lance is the founder and president of Lance Surety Bond Associates.