Undoubtedly like many of you, I am tired of hearing the word tariff. I am even more tired of not knowing what the true definition of success is here. Exhausted even.
Are we throwing tariffs around in order to generate revenue for Washington? Are they a way to onshore production? To simplify our supply chains? A means of strengthening the blue-collar middle class? A punitive tool to cow less than pliant trading partners and supposed allies? An attempt to drive down the trade deficit in order to increase the national savings rate? An effort to protect domestic industries and companies?
A combination of all of those?
There are any number of reasons why a government might employ tariffs. At some level, they might make intuitive sense. Unfortunately, tariffs are impediments to trade, and trade has always been good for the dissemination of goods, services, ideas and technology. Obviously, that is almost always good for economic growth.
Strongly believing the last two lines of the previous paragraph to be true, I don’t want to have to guess what the logic or desired outcome is. Hey, gray is okay in some instances. However, black and white is almost always better when you need to make decisions. Hey, I might not agree completely with the black and white, but I can deal with it and plan accordingly.
As probably everyone reading this newsletter knows, yesterday, the Trump Administration slapped a 25% tariff on automobile imports into the United States. While there was much wringing of hands and gnashing of teeth across the globe, this will primarily impact 5 countries. They are in order of the value of their auto exports to the U.S.: Mexico, Japan, South Korea, Canada and Germany.
French President Emmanuel Macon can be as indignant as he wants. He can hold his breath until he turns blue and stamp his feet on the floor. This tariff won’t, or shouldn’t, have a tremendous impact on the French economy. Whereas those 5 listed countries comprise something like 83.3% of US auto imports, France accounts for something like 0.3%.
As for the U.S. consumer, what does this particular tariff mean for them in the short-term? That is a great question.
Speaking solely for myself, my family doesn’t have any immediate plans to purchase a new vehicle in the foreseeable future. As such, President Trump could have put a 1,000% tariff on foreign autos yesterday, and it wouldn’t have impacted me. I am simply not in the market for a brand-new vehicle at this time, imported or otherwise.
As for potential buyers, you are in luck. According to caredge.com, the new car inventory in the United States during February was around 2.92 million units. That would be roughly 96 days of supply at current buying patterns. Of all the major brands, Lexus easily has the tightest supply at/with 39 days of inventory. On the other side of the spectrum, Ford is comparatively drowning at 138 days.
Remember, all of these are already on the lots ready to go and will not be subject to the new tariffs. Not surprisingly, a lot of clever dealers prepared for this, and filled up their lots ahead of yesterday’s announcement.
Then, you have to remember, the U.S. still produces a lot of vehicles stateside, mostly for domestic consumption. So, there will still be plenty of autos and trucks from which to choose which will not be subject to the announced tariff.
Interestingly, American nameplate General Motors will likely bear an outsized burden due to these tariffs since it imports roughly 750,000 vehicles into the United States from plants in Mexico and Canada. Conversely, the Mercedes-Benz GLE-class is made in Tuscaloosa County, Alabama, and, presumably, won’t be subject to this particular tariff.
So, do your part and buy a German car. Or something along those lines.
The point I am trying to make is the tariff on imported vehicles doesn’t have to impact you if you don’t want it to do so. Ordinarily, most people don’t HAVE to buy a car at a particular point in time. So, just wait until this brouhaha blows over. If you can’t wait, buy a used car, one made here in the United States or one that is already sitting on a dealer’s lot.
And that last paragraph assumes the consumer is on the hook for the entirety of the tariff, which it won’t be! Manufacturers won’t have the ability to pass along all of their cost increases to the end consumers. They have never been able to do so, and won’t be able to do so here. IF they could, companies would never go out of business, and yet our nation’s economic history is littered with producers who have gone belly-up.
But…but…if companies have to eat the cost, won’t that eat into their profits? And won’t that be bad for investors? Won’t that be bad for wealth creation in the economy since investors are normally willing to pay UP for earnings per common share?
What I am about to relay might come as a shock to you. As I type at 11:16 am CDT on March 28th, 2025, General Motors Co. has a market capitalization of around $46.51 billion. Ford, the other large domestic producer, has a market cap of about $38.66 billion. Stellantis, Dutch-headquartered marker of such fine American brands as Chrysler, Dodge, Jeep and Ram, has a market cap of roughly $33.08 million.
Combined, that works out to be $118.25 billion in market capitalization. That is a lot of money in absolute terms, no argument. However, and this is hard to fathom, the market value of the 3 biggest “American” auto companies is roughly that of Bristol-Myer’s Squibb, and only a little bigger than Starbucks.
You read that last phrase correctly. Starbucks is about the same size of the traditional U.S. auto industry, at least in terms of market capitalization. THAT is how much investors think/care about car manufacturers. It is crazy, isn’t it?
Regardless, in the end, I don’t suspect these tariffs will be in place too long. I fully anticipate manufacturers will commit to something, anything, to placate the Trump Administration, likely onshoring some amount of production. As for the timeline of that happening, dealer lots will still have plenty of vehicles on hand when the President ultimately gets his way.
That is a complicated way of saying “sooner rather than later.”
Still, that is just a guess as to what I suspect the endgame is in this instance. It could be something else altogether or a combination of things. I simply don’t know, with any sort of certainty, what success looks like here, and I sure wish I did.
It would make writing newsletters like this one much, much easier.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
Chief Economist
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as well as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.