Industry Experts Uncertain About Current Impact of Possible Tariffs Featured

By Ted Craig September 13, 2018

 

Prices at auction are rising, but is this due to the threat of tariffs?

Cox Automotive chief economist Jonathan Smoke is saying, “Yes, at least to a degree.

“A key factor behind the vehicle appreciation this summer is the fear of import tariffs’ leading to higher prices in the future,” Smoke said in the commentary to the August release of the Manheim Used Vehicle Value Index.

The Index rose in August to 139.7, its highest-ever reading.

It’s hard to say, however, how much of an impact really exists.

The latest Cox Automotive Dealer Sentiment Index shows more than half (51 percent) of dealers overall believe auto tariffs won’t impact their business, with another 11 percent expecting a positive effect.

Among new-car dealers, 56 percent expect a negative impact from tariffs. Of the franchised dealers who feel negatively toward tariffs, 66 percent believe consumers will face higher prices on all new vehicles, not solely imports.

Other industry analysts are more skeptical about the impact of potential tariffs on wholesale prices.

“We don’t have any evidence that the talk of tariffs are causing any changes to used-car prices,” said Anil Goyal, Black Book’s executive vice president of operations.

The upward movement has surprised many observers since an increase in off-lease volumes was supposed to drive down prices. But many other factors have come into play.

One of these factors is the amount of inventory lost in last year’s hurricanes. The best estimates show half a million cars lost to Harvey and Irma.

Another factor is the investment large dealer groups are making in their used-car operations, including opening standalone used-car superstores.

Jonathan Banks, vice president of vehicle valuations and analytics for J.D. Power, said dealers are also making data-driven purchases. This means they are willing to spend on cars at auction because they know buyers will pay for them.

Or more often financing them and that is another factor. Goyal said lower delinquencies and higher wholesale prices mean more creditors are loosening up.

Higher interest rates have less of an effect on used-car finance than new-car finance. But they do have an effect on dealer floor planning.

As a result, Banks said, dealers are more likely stocking up ahead of probable interest rate hikes than possible tariffs.

Goyal said that if tariffs do take effect, their impact will vary by brand.

There would definitely be increased substitution as some new cars become even more expensive.

One segment likely affected is European luxury cars. The good news is this a segment with considerable supply, as leases make up a majority of their new-car purchases.

 

 

Last modified on Thursday, 13 September 2018 19:06