Fixed Ops Journal - August 2019 - F16

FIXED OPS JOURNAL

TARIFFS
continued from Page 14

of China's currency, the yuan, against the U.S.
dollar, making the parts relatively cheaper, he
adds. The Chinese government also encouraged suppliers in that country to absorb some
tariff-related costs to keep exports flowing,
thus supporting economic growth, he says.
Dealership service departments work with
suppliers that belong to the Specialty Equipment Market Association to boost sales of accessories and customization parts. The tariffs
have caught his members off guard, says Stuart Gosswein, SEMA's senior director of federal government affairs. The impact of the tariffs
has been uneven, he notes.
"It ends up being very individual," Gosswein
says. "Some companies have tried to absorb
the cost. Others are passing it along."

No slowdown, for now
Trump has said he imposed the tariffs to
help correct the trade imbalance between the
United States and China and to force action
on Chinese trade practices he calls unfair. But
the tariffs are not slowing imports of auto
parts from China, says Kristin Dziczek, vice
president of industry, labor and economics at
the Center for Automotive Research in Ann
Arbor, Mich.
To the contrary, she says, parts imports from
China continued to grow each month last year
compared with 2017 even after the tariffs were
initially imposed. CAR calculates that auto
parts imports from China to the United States
rose 15.5 percent in 2018 over the previous year.
U.S. tariff policy "slowed imports of vehicles
from China and slowed exports of vehicles
and parts to China," Dziczek says. "It did not
slow imports of parts from China."
CAR did not have figures or projections for
replacement parts imports from China for
2019. Overall, Dziczek says, the China tariffs
"have added about $200 to the cost of manufacturing a vehicle. For some cars, that is the
entire profit margin."
Sourcing from a country without a tariff
won't work, Dziczek adds. Under a separate
set of tariffs called Section 232, all U.S. imports
of aluminum and steel were taxed, but some
countries, including Australia, were exempted. When suppliers bought more of these
products from Australia to avoid tariffs, she
notes, imports from Australia surged and the
Trump administration called on the Australian government to control the imbalance.
"It is like squeezing a balloon," Dziczek says.
"It is going to come out somewhere else."
In any case, she says, the parts price in-

PAGE 16

AUGUST 2019

Parts costs, tariffs can diverge

ALYSHA WEBB
foj@autonews.com

t's hard to determine the impact on a
dealership service department's bottom line of the Trump administration's
tariffs on auto parts imports.
A 25 percent tariff on an imported automotive-brand replacement part will not
necessarily lead to a similar price increase
in what the dealership pays for the part.
That price will depend on the type of contract an automaker has with a supplier. The
manufacturer may have an agreement to
buy a part at a set price for a certain period.
In such cases, "most of the OEs are saying
that is the supplier's problem" to absorb the
cost of tariff increases, says Paul McCarthy,
president of the Automotive Aftermarket
Suppliers Association, a division of the Motor
& Equipment Manufacturers Association.
An exception occurs when a manufacturer directs a supplier to source from China,
McCarthy notes.
"Those parts have seen a price increase"
because of the tariffs, he says. But even
then, he adds, the cost to the end consumer
likely won't be 25 percent higher.

crease will hit everyone equally: "There is not
a way to arbitrage it."
Doug LaCroix, fixed operations director at
Red McCombs Automotive, a dealership
group in San Antonio, predicts the impact of
the parts tariff on dealership service departments will be "minimal and temporary. Everyone will be in the same boat, whether you
are large or small."
Red McCombs Automotive has seven
new-vehicle dealerships as well as several
body shops and used-car stores. The group also sells about $1.5 million a month worth of
automaker-branded parts to dealers in south
and central Texas, LaCroix says.

Recall fears
Burlington Automotive Group operates seven
new-vehicle dealerships in Pennsylvania and
New Jersey, including four Kia stores. Wayne
Hileman, the group's co-owner, says the 25 percent tariff on Chinese parts hasn't affected his
business yet. But he expects it will eventually
raise the cost of replacement parts, especially
those for engines and transmissions.
Hileman says he fears a far-reaching impact
on parts costs as they affect policies such as

The impact of even a 25 percent tariff can be
relatively small, given the difference between
the price of producing a part in China and the
final retail price charged for it in the U.S.
The tariff is often based on the price of the
part in China, not the price the U.S. consumer
pays, says Dan Collins, vice president of sales
and engineering with Neotek Co., a Taiwanese maker of brake rotors and drums that produces original and aftermarket parts in China.
Dealers can charge as much as 400 percent more for a part than what it cost to produce in China, Collins says. For example, a
windshield wiper can cost $1.50 in China.
"What is 25 percent on top of $1.50?" he says.
But, Collins adds, much depends on the
part and the margin the importer charges.
For a high-dollar part such as a wheel bearing, he notes, a 25 percent tariff could add a
substantial amount to the cost.
McCarthy warns that some percentage of
the 25 percent parts tariff will eventually begin to be passed on to consumers, and some
of them may defer maintenance as a result.
"If over time this makes repairs more expensive," he says, "will we see a downturn in
the number of repairs done?" 
Kia's unlimited mileage lifetime warranty. Kia
has issued recalls this year of some Soul and
Sportage models. Hileman notes the manufacturer "gave customers good incentives to
stay" with Kia, including a new engine and
warranty with unlimited miles for some recalled units, Hileman says.
"What if that happens again?" he says.
Other automakers also offer generous warranties. Mitsubishi, for example, provides a
10-year/100,000-mile limited powertrain
warranty. Jeremy Barnes, Mitsubishi North
America's senior director of communications
and events, says the automaker has "no plans
to change our warranty pricing at the moment
due to tariffs."
When tariff-related price increases for replacement parts start to trickle down to dealerships, says McCarthy of the aftermarket suppliers group, service departments won't necessarily be hurt as long as they don't lose customers.
A trade deal between the United States and
China that would eliminate or reduce the import tariffs remains a possibility, he says.
He adds, "The reality is that uncertainty is
the new certainty." 

Fixed Ops Journal - August 2019

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