Will Car Costs Go Up? Nope

Investment Analysis Clubs Macro Economic Trends and Risks
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How much is the raw material cost of a car?

Electric vehicle raw material costs doubled during pandemic
Electric vehicle raw material costs doubled during pandemic103×160 3.99 KB

The cost increases aren’t limited to EVs: Raw material costs for traditional vehicles with internal combustion engines have also more than doubled during that time period to $3,662 per vehicle, up 106% from an average of $1,779 per vehicle in March 2020. That uptick is being led by increases in steel and aluminum.Jun 22, 2022

And labor costs are 5 to 10% of the sticker price.

$50k car price is less than $9k to produce.

The new tariffs mean people in the industry supplying higher cost cars will be in part laid off.

Demand in this economy is dropping fast. Car prices will be discounted if they want to sell cars.

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There is a heck of a lot of fabricating and overhead that goes into a car. Yes, a stamping line may only have one operator, to watch the computers, but the presses aren’t cheap. A set of tooling to build one model costs about half a Billion, and those dies wear out and need periodic replacement.

Demand in this economy is dropping fast. Car prices will be discounted if they want to sell cars.

I fully expect the manufacturers with plants in the US will revive the “shortage” narrative, and gouge the daylights out of their customers. Their sales volume will probably drop, but their profits will rise.

I voted my Whirlpool proxy tonight, and looked over the financial statements. You can certainly see when the protectionist tariff on washers ended.Feb 7, 2023. Whirlpool’s cash from operating activities went from $1390 in 22, before the tariff expired, to $915 in 23 and $835 in 2024.

Steve

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Nonsense. Ford’s net profit margin on car sales is under 4%. The tariffs are going to be 25% on the gross. There is precious little room to “discount” and still be profitable at all.

And that doesn’t even begin to calculate for the multiple border crossings most car parts make before being installed into the final product. I would have guessed there’s a way to account for that, but so far - in this rush - I’ve seen no details on how that might be accomplished, or what legion of accountants will be employed to keep track of it all.

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A friend of mine who holds onto his cars even longer than I do once said that “you can keep nearly any car going just by regular maintenance and throwing some parts at it.” He meant regular fluid changes, belt replacements, etc.

I wonder how many people actually need to replace their cars v. want to? Are the need people 50% of new car buyers? 25%?

With the price of cars rising, a lot of us will simply put in the extra dollars to the increased price of parts and maintenance rather than the outlay of dollars to a new car.

Pete

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Oh sure, it’s true. Last year I finally sold my 1996 Infiniti, and not because I “needed” to, I just finally found a new car I really wanted.

But if a lot of people do that, then dealers won’t need as many salespeople on the floor (or there won’t be enough commissions to pay them.) The auto factories won’t need as many workers on the line. The trucking industry won’t be shipping as many car haulers across the country. Those are all jobs that will go down in number.

Add it to the tens of thousands of government workers being laid off (another 20,000 at RFKs health agency announced yesterday) and the other “consumption reductions” that broad tariffs are bound to create, it’s difficult for me to see how a recession isn’t all but inevitable later this year.

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A lot of people have been suckered into leasing, instead of buying. Some lease contracts have a buy-out option. On the last “shortage”, the automakers and dealers were rogering customers so hard on new cars, that the market price of off-lease cars soared as well. There were reports of dealers refusing to honor lease contract buy-out clauses, because they knew they could sell the car for a lot more.

Steve

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On that point, the issue is parts availability. Some OEMs support their products better than others. One of the YT personalities I watch occasionally was in full rant mode a few weeks ago. He had bought a VW Mk V GTI, a model now 15 years out of production. When he bought it, one door wire harness was broken, a common problem with that model. He called up his favorite VW dealer for a new harness. No longer available. Another mechanic was recently ranting about a 12 year old Cadillac. Heater hose was leaking. He tried GM. He tried every aftermarket parts source he knew. Repeatedly came up empty, before he finally found a replacement hose. Same guy was ranting on another occasion, about engine parts being unavailable for a 2016 Dodge. Seems some OEMs would rather sell you a new car, than provide parts support so you can keep your old one going.

Steve…drives an 11 year old VW.

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TIG actually addressed that in his announcement. The USian content of parts/subassemblies that cross into Canada/Mexico, will not be taxed when the parts come back to the US in a Mexican/Canadian car.

Steve

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Yup, I agree. Even if much of this tariff stuff turns out to be smoke and mirrors this administration has destroyed consumer confidence to a remarkable degree in a remarkably short period of time. All this uncertainty is going to reduce consumer demand and business investment.

There are a lot of Americans heading into retirement that are overweighted in the stock market. If the market crashes and takes awhile to recover, it won’t be pretty. Unlike in 2008, China is not currently economically strong enough to mitigate a global recession.

I also think America’s running away from its international commitments is creating a vacuum that greatly increases the likelihood of Black Swan events. Given an inept White House who puts top secret military info on social media, it seems unlikely that these will be handled competently.

So we have trends for rising prices, declining consumer confidence/demand, increased political and international stability, and an 80 year old president running things with a history of bankruptcy. I think the next couple of years are going to be painful, especially since mitigating a recession with increased spending is no longer a political possibility.

In my individual stock investment account I am selling everything that I think is highly recession-sensitive, like Disney, airlines, and retail. I am holding onto or adding to companies with lots of cash on hand, like Alphabet and Brk, as these are likely to invest in good stuff when cheap and come roaring out of the recession. All pretty obvious and nothing fancy. Not sure about banks so am selling those as well.

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" fully expect the manufacturers with plants in the US will revive the “shortage” narrative, and gouge the daylights out of their customers. Their sales volume will probably drop, but their profits will rise."

Can any of us remember the last time that new vehicle prices dropped significantly ? I can not. Google search shows that prices have been stable over the last year or so,
but no big retreats. And now we throw tariffs into the mix.

As for the argument that low demand will force prices down, I don’t recall significant price drops during Covid pandemic, or the GFC.

I do agree that it is likely that the car companies will use the tariff policy to raise prices. But there has to be a point where people will quit buying.

Same with housing. People already are priced out of buying a new home, and Trump is raising prices by putting tariffs on lumber.

How we do not see an inflation spike is wishful thinking,imo.

But thanks to Trump, we all get to find out.
After all, the last age of tariffs in America, the so called Gilded Age, must have been an absolute Utopia for working class Americans /sarcasm

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fwiw, I just looked at the quotes for Ford, GM, and Strabismus.

GM is down the most: two of the three plants that build Silverado pickups are out of country, as are the plants that build all of their Equinox, Trax, Trailblazer, and Encore CUVs.

Strabismus is down less. Their Jeep Compass, Chrysler Pacifica, Ram HD trucks and commercial vans are built out of country.

Ford is down the least. All the F-series trucks and commercial vans are built in the US. The only vehicles built in Mexico are the Mach-E, Bronco Sport and Maverick. The Bronco Sport is the same, except for exterior styling, as the Escape, built in Louisville Assembly, which has plenty of room to expand production. If people really want the Bronco styling, or a smaller pickup, they can koff up another $10K, and buy a Wayne, MI built Bronco or Ranger. In spite of Farley’s crying, I fully expect him to gouge the living daylights out of people and post handsome profits. Only a few weeks ago, Farley was boasting about his ambition to charge Porsche level prices and margins on Fords. This comes after he was boasting about how much money he was going to take off of customers with subscription fees.

Steve

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I believe that is true for older vehicles that are mechanical. I question whether that is true for modern vehicles with a lot electronic mechanisms. When those mechanisms act up one has to determine whether it is the electronic component or the wiring is the problem.

Here is an auto technician rant regarding:“Why do we have to have these non essential items hooked to the already vulnerable data network that renders your car useless when these items fail!?”
His wife’s minivan is dead in the water when the backup camera malfunctions.

Computerize vehicles with unnecessary gizmos. New vehicles are over complicated IMO.
OK. My angry old man rant is over.

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Great question. How to answer it?

27% of all vehicle accidents resulted in the vehicle being totaled (2023).

There were 5.93 million police reported accidents in 2022.

We of course don’t know the details of those accidents and it is fair to assume many, if not most, were multi-vehicle accidents. I am going to assume 65% involved more than one vehicle. That makes the total vehicles involved at 9.78 million.

If we apply the 27% totaled ratio, we have 2.64 million that would have to be replaced. My guess is that the number is larger. I replaced a 2006 car last year because it was more expensive to repair it (crack in the engine block) than what the car was worth. There are likely millions more vehicles in this group as well.

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That is the assembly line, transport, marketing etc…Ford could improve. That is the entire exercise.

But if Ford can not markup its cars it lays off people. That is also common in this exercise.

Demand in the economy is dropping and so will prices.

Some cars will still be profitable. It won’t be Fords. Unless Ford can find a vehicle in its line up that is profitable at volume.

I am not saying this makes much sense.

Raising corporate taxes would have worked well. Instead of destroying everything known to man.

Of course the Ford executives in November 2024 had everything to party hardy over with the coming corporate tax cut. They knew what they were doing because they are MBAs. Silly gooses.

I admire the courage of MBAs. The ability to demand pay they were never worth. The inspiration to support things that work against the corporation they run. Incredible, marvelous, magnificence, beyond regard.

For me personally this is a heart moving and inspired opportunity.

Meanwhile thanks to their personal greed and modicum of idiocy we will have a great depression.

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Since 2018, backup cameras are a mandated safety feature. If they aren’t working, perhaps the vehicle shouldn’t be able to be driven since a critical safety feature isn’t working?

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Reporters are smarter than the rest of us. They never hear themselves talk or write.

The main reason tariffs aren’t likely to affect Tesla is the company’s localized manufacturing. Though the company operates gigafactories in China and Germany, none of the EVs built there are sold in the US.

Tesla’s US-sold vehicles are made exclusively at the company’s Fremont, Calif., location or at Giga Austin in Texas. Rivian (RIVN) and Lucid (LCID) are the only other automakers that make 100% of their vehicles in the US for US buyers. By comparison, 77% of Ford’s autos are made in the US, followed by Stellantis (57%), Nissan (52%), and GM (52%).

As of the end of 2023, the United States and China were Tesla’s biggest EV markets with 654,888 EV sales in the US and 603,304 EVs sold in China.

My comment TSLA shareholders beware, you are in GM’s position or worse because it is not just Chinese production that is not in the US. Tesla has a low production percentage made in the US over all.

Worse yet TSLA has too much capacity everywhere.

Message to the CEO which is far too late, “Shutayoumouth”.

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Ford will gouge the living daylights out if it’s customers. A couple years ago, Farley said he wanted to exit the two row SUV segment, because there was 'too much competition" for him to take as much money off customers as he wants to. That competition is now gone.

The RAV 4 is built in both the US and Canada. Half the production capacity will be heavily tariffed, on a model that sole 475k in the US last year.

The CR-V is built in both Canada and the US. Half the capacity will be heavily tariffed, on a model that sold 401K in the US last year.

The HR-V is only built in Mexico. 100% of a model that sold 151k last year, will be heavily tariffed.

The Jeep Compass is only built in Mexico. 100% of volume will be heavily tariffed, for a model that sold 111k last year.

The Chevy Equinox is only built in Mexico. 100% of volume would be heavily tariffed, for a model that sold 207k last year.

The Chevy Trax, Trailblazer, Buick Encore and Envista, are all imported. That means 100% of volume will be heavily tariffed for models that totaled 414k sold last year.

Two of the three plants building Silverado pickups are outside the US.

See why GM is being hit the hardest today?

Ford sold 124k Bronco Sports and 131K Maverics, which are both built in Mexico. But the Escape is built in Louisville, in a plant that has twice the capacity that the Escape is using. So Ford can shift Bronco Sport prospects into an Escape, at the same price point, or into the larger, Michigan built Bronco or Ranger, and take an extra $10K off them.

And all the F-series pickups and Transit commercial vans are built in the US.

Farley is in a position to gouge the living daylights out of people, because his competition is crippled.

Steve

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So you’re saying Ford could have lowered their expenses by 20%, but just didn’t bother, but now they can? OK, good theory.

Well at least you realize it.

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You do not read that well. I have been saying all along this is the wrong way to solve the problem. Just raise corporate taxes to have more factories built here.