Trump presidency could bring higher car prices for consumers, uncertainty for automakers

President-elect Donald Trump has promised a resurgence of Michigan’s auto industry with proposals which include increasing tariffs and eliminating electric vehicle initiatives.

Experts say that these changes would raise costs for consumers looking to purchase a vehicle and leave auto manufacturers in flux as they try to adapt.

Trump’s master plan for the auto industry centers around raising tariffs on foreign imported goods.

During a private event with the Detroit Economic Club in October, Trump criticized the city of Detroit and blamed the shrinking auto industry for its perceived decline. Trump explained to business leaders during the event that tariffs would incentivise manufacturers to return to the U.S. and create jobs domestically, according to the Detroit News.

“They’re going to come here, and they’re going to build here because they don’t want to pay those stiff tariffs,” Trump said.

Before his win on Election Day, Trump had proposed a broad tariff of up to 20% on all U.S. imports and as much as a 100% tariff on Chinese products. When justifying his plans, Trump wrongfully stated on multiple occasions that the tariffs will be paid by other countries.

U.S. companies pay tariffs in the form of import taxes to the federal government. Chris Douglas, an economics professor at the University of Michigan-Flint, said because auto manufacturers would still need to rely on imported parts to assemble their vehicles, raising tariffs would only drive up car prices and pass those costs onto consumers.

“It’s a guarantee that consumers see higher prices because of a tariff because a tariff is a tax, and, like any tax, consumers pay that tax in the form of a higher price,” Douglas said. “The question is, just how much does the price go up by?”

The auto industry, despite shrinking, has remained an important part of the economy in Michigan, which is home to Detroit’s Big Three automakers: Stellantis, Ford and General Motors. According to a University of Michigan study, the Big Three have a combined workforce of roughly 66,000 United Auto Worker employees in Michigan alone – more than four times as many as any other state.

Douglas explained that rising tariffs would benefit the Big Three automakers because it would protect their market share of the industry. However, if tariffs are increased to a certain extent, there’s a risk that it could hurt U.S. manufacturing rather than protect it, he said. Foreign countries are likely to retaliate and levy tariffs on U.S. exports to their countries, as was the case during the first Trump administration when China began imposing its own tariffs on U.S. imports.

Dan Ives, managing director and equity analyst with Wedbush Securities, said that there could be rollercoasters ahead as things start to play out within the auto industry.

Trump also plans to take aim at electric vehicles, as he’s repeatedly expressed his disdain for President Joe Biden’s policies to spur EV manufacturing and sales.

Michigan has seen substantial investment at the federal and state levels for EV manufacturing, including hundreds of millions of dollars allocated for EV charging infrastructure and battery plants in Big Rapids and Marshall.

That type of investment may start to go away under the Trump administration, Douglas said.

First, there’s a $7,500 tax credit that subsidizes EV purchases, which experts believe have been a deciding factor for those who were on the fence about going electric. Trump previously talked about eliminating the tax credit if he were to win the November election, although that decision would ultimately be left up to Congress.

“EV’s are already pretty expensive for the consumer, so that just makes EV’s that much more expensive, which would probably cause some potential EV buyers to switch back to a gasoline powered vehicle,” Douglas said.

Tesla could have market advantage if tax credits are pulled under Trump. Tesla’s CEO and tech billionaire Elon Musk was recently selected to help lead the Department of Government Efficiency.

Ives said Tesla is the only manufacturer with the scale to compete within the EV market without the help of subsidies.

The Detroit Three automakers are probably looking at a curtailed EV strategy that looks at producing more hybrid vehicles while they adjust to a new world under Trump, he added. 

As Trump’s policies change the trajectory of the auto industry, there’s also a possibility that could lead to profit losses for auto makers and job cuts.

“It adds a lot of uncertainty, and they’re going to ultimately have to see how this all plays out over the coming months because it could significantly influence their production and a lot of their strategic decisions,” Ives said.