The cost of shifting to pricier vehicles

Research predicts that the new USMCA treaty could add 2.5% to the cost of U.S. non-truck vehicles. (Photo: Shutterstock)

As automakers have ramped up the content of vehicles now manufactured with more safety features, telematics, and other technology, the cost of vehicles has risen. New tariffs put in place by the Trump administration in CY2018 or under review for CY2019 may drive prices even higher. Already, tariffs on aluminum and steel sourced outside the U.S. have led analysts to predict the price of a vehicle may increase by 1%. The Center for Automotive Research predicts the expansion of North American capacity for auto assembly, parts and components manufacturing, and steel and aluminum production, and the higher labor costs in Mexico called for under the newly proposed USMCA treaty may add more than 2.5% to the cost of U.S. non-truck vehicles, and parts and components imports.

Additional tariffs of 25% on vehicles produced by European Union, Japanese and Korean automakers are still under consideration for CY2019, which the Alliance of Automobile Manufacturers estimates could mean an additional cost of $5800 per vehicle to the 44% of vehicle imports sold annually in the U.S. And, the 25% tariff on imports could also increase costs for U.S.-built vehicles by as much as $2000 per vehicle-based on foreign-made content of about 35% according to the American Automotive Policy Council. As the cost of new vehicles rises, the cost of used vehicles will also likely increase, this could lead not only to higher repair costs but also to higher total loss costs as well. While there remains a great deal of uncertainty about the final outcome of the automotive tariffs, it’s clear that higher costs across the entire automotive industry are a likely result.