As I write this, President Trump’s executive order that imposes 25% tariffs on imported cars has just gone into effect, and the stock market has tumbled. There is no doubt that, by the time you read this, something more will have happened. The tariffs may be changed, or even abandoned, or the automotive industry may have suffered a huge collapse. New tariffs may be introduced. It is hard to predict the results and aftershocks that may ensue. Critically important to car collectors is that the initial announcement was unclear on whether the tariffs were going to apply to used cars, and […]
As I write this, President Trump’s executive order that imposes 25% tariffs on imported cars has just gone into effect, and the stock market has tumbled. There is no doubt that, by the time you read this, something more will have happened. The tariffs may be changed, or even abandoned, or the automotive industry may have suffered a huge collapse. New tariffs may be introduced. It is hard to predict the results and aftershocks that may ensue.
Critically important to car collectors is that the initial announcement was unclear on whether the tariffs were going to apply to used cars, and many assumed the worst. However, the final text contained an exception for cars that are 25 or more years old. While that was welcome news, and covers much of the collector car market, it still leaves out a lot of newer cars. This includes plenty of Next Gen models as well as the bulk of the modern supercar segment (Ferrari Enzos, Lexus LFAs and Porsche Carrera GTs, among others). Notably, this part of the market has been hot lately.
The executive order
President Trump issued an executive order on March 26 announcing 25% tariffs on imported cars and certain car parts. The order explains that the pandemic exposed critical vulnerabilities and choke points in global supply chains, undermining our ability to maintain a resilient domestic industrial base.
According to the executive order, agreements such as the revisions to the United States-Korea Free Trade Agreement and the United States-Mexico-Canada Agreement (USMCA) have not yielded sufficient positive outcomes. Foreign automobile industries, bolstered by unfair subsidies and aggressive industrial policies, have expanded, while U.S. production has stagnated. All of this creates a threat to national security which, under the Trade Expansion Act of 1962, enables the president to adjust imports to protect our national security.
Some of the relevant details are:
The tariff will be applied to imported passenger vehicles (sedans, SUVs, crossovers, minivans, cargo vans) and light trucks, as well as key automobile parts (engines, transmissions, powertrain parts and electrical components), with processes to expand tariffs on additional parts if necessary.
Importers of automobiles under the USMCA will be given the opportunity to certify their U.S. content and systems will be implemented such that the 25% tariff will only apply to the value of their non-U.S. content.
USMCA-compliant automobile parts will remain tariff-free until the secretary of commerce, in consultation with U.S. Customs and Border Protection, establishes a process to apply tariffs to their non-U.S. content.
The tariff is levied on top of the existing 2.5% duty. Thus, it’s a total of 27.5%.
The truth is, “free trade” has really not been all that free. Martin Button, Global Brand Ambassador for CARS Worldwide and a longtime specialist in importing cars into the United States, explains, “We have traditionally levied a 2.5% duty on cars entering the Unites States. However, European nations have traditionally imposed 10% duties on U.S. cars exported to Europe. Our government has been trying to correct that imbalance, to no avail, since Bill Clinton was president, so this is nothing new.”
Immediate reactions
With so much uncertainty surrounding the tariffs in late March, buyers and sellers with pending transactions leapt into action. “Ever since this was announced,” Button says, “we have been working our tails off flying every car possible into the U.S. to beat the tariff trigger date. Whether the tariff applies depends on when the car clears Customs.”
Collector car dealer Simon Kidston had the same experience. “Ironically, the threat of tariffs has expedited at least two big deals for us recently: the McLaren F1 road car and the Ferrari 275 GTS/4 NART Spider, both of which went to new U.S. clients who acted very decisively to make sure they concluded everything in good time,” he says.
Ferrari itself quickly went public with a new pricing policy. All Ferraris that come in before the imposition of tariffs will see no price changes. Three models — the 296, SF90 and Roma — will see no price changes regardless of their import date. The remaining Ferrari models will see price changes of up to 10%, with the company absorbing the remainder of the tariffs.
Button reports that two major Ferrari dealers have told him they are unconcerned about the tariff because Ferrari buyers don’t care how much the cars cost.
Butch Bockmier, co-owner of Park Place LTD in Bellevue, WA, says that both of its new car lines, Lotus and Aston Martin, “have been quiet about what they will do. Both have advised their dealers to stand by, as there are negotiations underway.”
Speculation is that both companies, along with others, are requesting exemptions based upon their low production numbers.
Collector car auctions won’t be entirely immune. Word is that a number of European consignors to the upcoming Monterey Car Week auctions had advised their auction companies before the full details of the tariff were known that they would not be sending cars on which they had to pay a 25% tariff. While the exception for cars older than 25 years will mute this effect, we still expect to see fewer Next Gen cars being consigned to U.S. auctions from overseas or imported to the U.S. A 25% tariff on a $4m Enzo is, of course, a million dollars.
“The U.S. is the biggest single collector car market, at least half of the worldwide turnover, and it can survive alone,” Kidston says, “but would be far more static and less interesting without novel acquisitions and disposals flowing in and out.”
Ripple effects
The executive order applies not only to cars but also to certain auto parts. There isn’t much clarity yet on exactly which parts are covered. Obviously, to the extent that parts become more expensive, automotive repairs and restorations are going to cost more. Similarly, crash repair costs will go up. And when that becomes significant, insurance premiums are going to go up as well.
More subtly, it should be expected that tariffs on replacement parts will reduce the number of parts available for purchase. That will lengthen repair and restoration times — in some cases dramatically. When the repair is a consequence of a crash, the resulting loss-of-use claims will be larger, given the longer downtime. That can add even more pressure on insurance premiums.
Insurance companies can respond to the increased parts cost and reduced availability by pressing harder for the use of non-OEM replacement parts. For example, U.S.-made aftermarket replacement parts for your Porsche might be available, although many of us would object to their use. Would insistence on OEM parts cause our insurance carrier to insist that we pay the upcharge and waive any claims for further loss of use?
Silver lining?
As they say, every cloud has a silver lining. Bockmier’s opinion is, “I think I like the tariff.”
That strikes me as an odd thing for him to say, but he explains, “Lotus and Aston don’t really produce a lot of cars, so that effect is limited. Meanwhile, we have about 40 new cars and many more used cars in inventory. Aren’t they all now worth more?
“Customers are pretty smart. They know that this is going to make used cars more expensive, and they will live with that,” he says. “Business is pretty good right now.”
Button probably sums it up best: “These are turbulent times indeed!”
John Draneas is an attorney in Oregon and has been SCM’s “Legal Files” columnist since 2003. His recently published book The Best of Legal Files can be purchased on our website. John can be contacted at john@draneaslaw.com. His comments are general in nature and are not intended to substitute for consultation with an attorney.