President Donald Trump’s new tariffs threaten to shake up the auto industry, threatening to add thousands of dollars to the cost of even U.S.-made vehicles. For now, though, BMW will give buyers a break, the automaker saying it will absorb the added tariff costs on vehicles it imports from Mexico. Whether BMW can maintain that strategy – and whether other manufacturers will follow – is unclear.
Trump’s tariffs would impact the Mexican-made BMW 2- and 3 Series models. A 2 Series Gran Coupe is shown here.
The new tariffs expected to be imposed by Pres. Trump next month on vehicles imported from Canada and Mexico threaten to shake up the auto industry, a study by the Anderson Consulting Group estimating new vehicle prices could go up as much as $12,000 – or more – with even models assembled in the U.S. likely to be hit since virtually all rely on at least some imported parts and components.
Industry watchers worry the tariffs could hammer industry earnings, especially if automakers press suppliers for further price cuts. But auto buyers are also likely to feel the pain at a time when Cox Automotive report new vehicle transaction prices are averaging nearly $49,000 – just short of the all-time record.
BMW has announced a strategy that could hurt its bottom line – but which could shore up demand – the German automaker advising U.S. dealers it will “price protect” some Mexican-made models. But the plan is expected to last only a short time.
Tariffs could have broad impact
Pres. Donald Trump ordered a 1-month reprieve on Canadian and Mexican tariffs.
Trump originally announced plans to levy new, 25% tariffs against Mexico in February but then delayed that move for a month. In March he moved ahead with the trade sanctions targeting Canada and Mexico – but again delayed tariffs directly impacting the auto industry.
Barring a breakthrough in negotiations, they’re now set to take effect early in April. Meanwhile, Trump did move ahead with new tariffs on Chinese goods. And he has put in place tariffs on imported steel and aluminum.
Manufacturers producing the bulk of aall vehicles sold in the U.S., wherever they’re made, are expected to face some upward price pressure in the coming month.
BMW’s plan
With prices ranging from $46,675 to $62,775, the tariffs – based on wholesale costs — add more than $10,000 to the price of a 3 Series in the U.S.
BMW wants to minimize the impact on dealers and retail buyers, according to a report that was first published by the Wall Street Journal.
The automaker advised dealers it will “price protect” certain Mexican-made models that would be impacted should Trump end the moratorium on auto tariffs next month. These would include both the 3 Series sedan and 2 Series coupe.
But the automaker also said the move will be in effect only until May 1. It hasn’t offered details but this could encourage dealers to front load factory orders to get out ahead of tariffs by building U.S. showroom stock.
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Will other automakers follow?
Volvo has temporarily absorbed tariff costs for the all-electric EX30 – but plans to move production from China to Europe.
The suits of tariffs Trump has launched – or proposed, with many expecting more sanctions targeting European autos – could create “unprecedented” disruptions, said Sam Fiorani, lead analyst for AutoForecast Solutions.
Canada and Mexico are particularly vulnerable, providing about three dozen different models to American dealers. These range from entry-level vehicles like the Honda HR-V and Volkswagen Taos to the higher-end Audi Q5 and popular sellers such as the Chevrolet Silverado pickup and Honda CR-V and Toyota RAV4 crossovers. In BMW’s case, Mexican-made products account for about 10% of its U.S. sales, according to the automaker.
Volvo chose to minimize price hikes on the little EX30 battery-electric vehicle introduced a year ago after former Pres. Joe Biden quadrupled tariffs on Chinese-made EVs. But it’s doing that to avoid killing off demand while preparing to transfer EX30 production to a factory in Belgium.
So far, there’s been no indication other manufacturers will follow BMW’s lead on Mexican and Canadian products, though there have been suggestions automakers might absorb some of the additional costs on particularly price-sensitive models.
On the other hand, they could also add mark-ups on top of new tariff costs, much as they do when adding new features and functions, such as federally mandated safety gear. But Cox Automotive analysts have warned that the market is reaching the limits of price elasticity, today’s near-record prices helping explain why U.S. sales haven’t rebounded to past highs – the industry topping out in 2016 with 17.1 million vehicles sold.
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