CARS.COM — Should a border adjustment tax under President Donald Trump take effect, it could add thousands of dollars to the price of your new car. That’s according to Baum & Associates, an automotive forecaster based near Detroit, which modeled some outcomes to the tax scenario.
Related: Trump’s Big Border Tax: Answers for Car Shoppers
The firm estimates that only Tesla, which assembles the cars it sells in the U.S. in California, would not have to raise prices to offset a tax hit. Other automakers would face pressure to charge anywhere from $282 (Ford) to $17,204 (Jaguar Land Rover) more per car — though it’s unlikely that any increase “more than a few thousand dollars” would actually happen, the firm notes.
In what it calls a “thought exercise,” Baum & Associates analyzed the effects of a proposal for a border adjustment tax already in Congress that could affect imported goods with a tax of some 20 percent, offset roughly by credits for any U.S. exports. It’s more complex than a straight border tariff, which simply taxes imported goods.
The firm says automakers would face pressure to raise vehicle prices to recoup the tax hit, but the hike per vehicle ranges widely. Ford and GM would need to raise their prices less than $1,000 to offset tax penalties, but automakers with little or no U.S. manufacturing such as Volvo, Volkswagen, Mitsubishi and Mazda would need to add more than $5,000 per car. Jaguar and Land Rover, a pair of affiliated luxury brands, would need to add a whopping $17,204 per vehicle. Even for them, that’s a steep increase (21 percent) over average vehicle prices, Baum & Associates noted.
Here’s the price hike per automaker to recoup a potential tax hit, according to the firm, followed by the percentage increase over each automaker’s respective average vehicle price:
- Tesla, zero; zero percent
- Ford, $282; 1 percent
- GM, $995; 2 percent
- Honda, $1,312; 4 percent
- Fiat Chrysler Automobiles, $1,672; 5 percent
- Nissan, $2,298; 8 percent
- Toyota, $2,651; 8 percent
- Hyundai-Kia, $2,704; 11 percent
- Subaru, $3,656; 13 percent
- BMW, $3,725; 8 percent
- Mercedes-Benz, $4,211; 9 percent
- Mazda, $5,156; 21 percent
- Mitsubishi, $5,938; 22 percent
- Volkswagen, $6,779; 17 percent
- Volvo, $7,643; 19 percent
- Jaguar Land Rover, $17,204; 21 percent
Alan Baum, the firm’s founder and principal, speaking to Cars.com cautioned that the results don’t translate to a straight price increase if the tax were to take effect.
“Obviously, automakers make decisions on pricing all the time, and they want to make decisions that best serve their company in terms of profit [and] in terms of market share,” he said.
What’s more, price increases wouldn’t come evenly across all cars.
“They’d be more likely to pass it along in the higher-value vehicles,” Baum added. “If you’re buying a [Ford] Focus and the price goes up $1,000, you’re not buying a Focus. If you’re buying a pickup and the price goes up $1,000 and — obviously, it depends on what the competition is doing as well — you’re [still] buying the pickup.”
Still, the firm said its study “makes a point that is obvious to economists, but sometimes invisible to the rest of us: Consumers will pay for a lot, though not all, of the increase in companies’ costs that result from taxing their imports at our borders.”
Brands with no current U.S. manufacturing footprint — chiefly Volvo, Mazda, Mitsubishi and Jaguar Land Rover — are “most in the crosshairs” of a border tax, the firm notes. Reactions would differ: Some import-heavy automakers may contract with others to build cars at existing U.S. factories, while others may build new plants altogether.
Indeed, LMC Automotive has reportedly forecast that Mexican auto production will rise 49 percent over the next six years, but Baum & Associates now believes at least a third of that will return stateside.
Trump or no Trump, automakers are already investing here. The Center for Automotive Research notes that just 27 percent of North American automotive investment has gone to Canada and Mexico since 2009. The remaining 73 percent has gone to the U.S. — a share that outpaces its relative population within the region.
The devil’s in the details, and nobody knows what the overall tax policy will be, or when it will take effect. Kristin Dziczek, who directs the Industry, Labor and Economics group at CAR, noted in January that since the border adjustment tax is part of a proposal for comprehensive tax reform in Congress, it would still have to go “through the legislative meat grinder.” After that would come an administrative process to define the rules with “massive lobbying” throughout, Baum added.
Suffice it to say, there are still plenty of unknowns.
“Stay tuned,” the study concluded. “We are in uncharted waters.”