Despite Georgia’s auto plants, tariffs threaten to ‘wreak havoc’ on car prices

“The (Trump administration) wants to tear up the trade agreements that we’ve had for decades, and they want to create a new paradigm where if you want to sell here, you have to build here,” Ketels said. “But it will be a very painful exercise to get there, and there’s no guarantee that it will work.”

About half of all cars sold in the U.S. are assembled in other countries. Even models from American brands aren’t always assembled here. The Chevrolet Silverado and GMC Sierra are icons of the American auto industry, but some models, for instance, undergo final assembly in Mexico.

Many cars assembled in the U.S. rely on supply chains that are global and are especially intertwined with suppliers in Canada and Mexico. The top two imported products from Mexico to the U.S. are autos (nearly $93 billion) and auto parts (nearly $78 billion), data from the Census Bureau show. Canada’s second and third top exports to America are autos (about $43 billion) and auto parts (about $14 billion).

Trump’s 25% tariffs on all vehicle and car part imports are set to go into effect April 3, joining similar new taxes on imported steel, aluminum and goods from China, Canada and Mexico. It’s the linchpin of his administration’s economic agenda, levying financial threats in order to rewrite trade agreements and spur domestic investment.

“Anybody who has plants in the United States, it’s going to be good for,” Trump said Wednesday of the auto tariffs.

Cars tend to be one of the largest purchases Americans make, and it’s a sector sensitive to inflation. Art Wheaton, director of labor studies at Cornell University’s School of Industrial and Labor Relations, said the tariffs “will create immediate price increases and wreak havoc on supply chains.”

Cox Automotive Chief Economist Jonathan Smoke estimates that tariffs on Mexican and Canadian auto parts would add about $3,000 to the price of vehicles built in the U.S. The average price of cars made in Mexico and Canada are expected to increase by $6,000. Price increases would slam the brakes on new car sales that have been slow to recover from the COVID-19 pandemic’s economic upheaval, he said.

“Affordability has been holding back market potential for years,” Smoke said on a Wednesday market analysis call. “Between (loan) rates and tariffs, affordability is looking like it will get much worse, even though it looked like we had turned the corner last year.”

Long-term investments

New auto factories take years to build and involve investing billions of dollars and hiring thousands of workers. Those investments aren’t made lightly and can’t be pivoted quickly.

Take Hyundai Motor Group’s $7.6 billion electric vehicle factory in Coastal Georgia as an example. The factory was announced three years ago and is expected to eventually employ 8,500 workers. It opened in October. It still has many hiring waves and expansions to go, but it had its formal grand opening Wednesday — the same day Trump announced his auto tariffs.

Hyundai North America’s chief executive, José Muñoz, said the Metaplant near Savannah, which is designed to eventually produce up to 500,000 vehicles per year, was motivated by opportunity the Korean company saw in the American market for alternative fuel vehicles, namely EVs.

“We took the decision some years ago to invest in this market (the U.S.),” he said. “This is the market that we believed was the one that needed it the most, and we didn’t do it because of incentives or anything.”

Credit: AP

Credit: AP

A Hyundai spokesperson said Thursday the company “remains committed to the long-term growth of the U.S. automotive industry,” adding that the automaker announced $21 billion in new U.S. commitments earlier this week. Those projects include a new steel factory and some $9 billion in automobile capacity expansions at factories in Georgia and Alabama.

Georgia has been one of the country’s largest benefactors of automakers preparing their EV fleets for wider consumer adoption, a jump industry experts say is still on the horizon even if sales have lagged expectations. EV startup Rivian plans to build a $5 billion factory an hour east of Atlanta. Kia, a subsidiary of Hyundai, also retrofitted its West Point factory to incorporate EV production.

Cox Enterprises, the owner of The Atlanta Journal-Constitution and Cox Automotive, also owns a 3% stake in Rivian.

A wave of auto parts suppliers have also flocked to Coastal Georgia to be within the orbit of Hyundai’s Metaplant, which Ketels said makes it easier for additional auto-related companies to move to Georgia because the network is in place. While tariffs could speed up some of those location decisions, he warned that the impacts of heightened car prices won’t be lessened just because more vehicles are built in Georgians’ backyards.

“Georgia, Michigan and other states will benefit with more jobs, but the rest of the country will have to pay higher prices (for vehicles), including Georgians and Michiganders,” he said. “Everyone will have to pay higher prices for all these vehicles.”

Credit: HYOSUB SHIN / AJC

Credit: HYOSUB SHIN / AJC

Enduring expense

Like the basics of supply and demand taught in Economics 101, higher vehicle prices are expected to prompt automakers to slow down their assembly lines.

Smoke with Cox Automotive estimates that within a week of the tariffs going into effect, North American vehicle production will decline by 20,000 vehicles — a 30% slowdown. In light of the tariffs, Cox Automotive downgraded its 2025 sales forecast from increasing 1-2% from last year to decreasing 1-2%.

“The administration has communicated that they are willing to see the economy deteriorate if that is necessary to accomplish their goals,” Smoke said.

United Autoworkers, a union that represents workers in the U.S. and southern Ontario, Canada, praised Trump’s tariffs. UAW President Shawn Fain said the policy marks “the beginning of the end of a 30-plus year ‘free trade’ disaster,” referencing the North American Free Trade Agreement that was replaced by the U.S.-Mexico-Canada Agreement that Trump enacted during his first term.

Ian Greer, a research professor at Cornell’s School of Industrial and Labor Relations, said tariffs may “welcome the end of free trade,” but he said the increased costs prompted by international trade wars could cost jobs or prompt the shift of auto jobs to states historically hostile to union labor, such as Georgia.

“Any new automotive jobs will be overwhelmingly nonunion, and Republicans in state and federal governments will work to keep them that way,” Greer said.

Mercedes-Benz, which has its U.S. headquarters in Sandy Springs and operates a factory in Alabama, said it is “currently assessing the impact” of the announced tariffs.

“Mercedes-Benz supports free and fair trade that underpins prosperity, growth and innovation,” the company said in a statement.

Credit: Miguel Martinez

Credit: Miguel Martinez

Porsche Cars North America, which is based in Atlanta, declined to comment but directed an AJC reporter to industry group Autos Drive America.

“At a time when cost is the No. 1 concern for American car buyers, U.S. automakers are working to provide a range of affordable vehicles for consumers,” said Jennifer Safavian, president and CEO of the trade group. “The tariffs imposed today will make it more expensive to produce and sell cars in the United States, ultimately leading to higher prices, fewer options for consumers and fewer manufacturing jobs in the U.S.”

Ketels said the political will to maintain tariffs to try to spur more American factories might begin to wane once its inflationary effects hit car-buyers’ wallets.

“Does this administration have the wherewithal to endure the criticism that they’re likely to get when people can’t afford to buy cars and other products and when they have a harder time paying their bills,” Ketels said. “Are they going to stick with this strategy?”