President Donald Trump's executive order imposing tariffs on foreign steel and aluminum may translate to higher prices to commercial fleets for vehicles and truck or van equipment, fleet management company experts said.
Following Trump's March 8 executive order, tariffs of 25% on steel and 10% on aluminum imported into the U.S. go into effect 15 days later. Canada and Mexico will initially be exempted from the tariff, and other countries could be added later, according to reports.
Wall Street and automotive analysts have said the tariffs are likely to increase vehicle prices because manufacturers would pass along higher costs to customers.
"A likely result from these new steel and aluminum tariffs is that costs will increase throughout the supply chain, driven by higher raw material prices," said Charlie Chesbrough, senior economist for Cox Automotive. "With demand at high levels already, it’s likely suppliers will pass their higher costs up the chain, and eventually to car buyers. Alternatively, suppliers may have to absorb the higher input prices by cutting their own costs — generally, neither outcome is good for the industry."
JPMorgan analyst Ryan Brinkman released a report saying the tariff would likely impact the earnings of Ford and General Motors, but he added that any rise in the prices of these materials would likely be absorbed by the manufacturers, reports CNN Money.
Equipment manufacturers such as Adrian Steel, Knapheide, Ranger Design, and others have begun using lighter-weight materials but still primarily offer steel-based shelving, ladder racks, and other equipment.
Whether fleets will pay more for their vehicles and auxiliary equipment remains to be seen, said Partha Ghosh, ARI's director of vehicle supply chain and remarketing.
"Depending on where OEMs and upfit vendors source their steel and aluminum, and how much of these materials they source from foreign producers, they may be impacted by costs increases to varying degrees," Ghosh said. "Ultimately, we anticipate that how and when they choose to react to these possible input costs will likely depend on market landscape, competitive pressures, degree of the cost impact and the expected length of the impact."
Vehicle manufacturers have been reducing the amount of steel in their vehicles in recent years as a strategy to lighten weight to achieve higher fuel economy, a strategy that could help reduce the impact of the tariffs, said Dan Frank, chief executive of Wheels, Inc.
"The average vehicle is 54% steel and has about 1 ton of steel in it," Frank said. "Steel costs about $700 a ton, which is up about $100 per ton since tariff talks began, so some of the cost is already baked in. In any case, a 25% tariff, even if not offset, competed away [and] absorbed by the OEMs wouldn’t add that much to the cost of a vehicle."
Vehicles that contain steel and aluminum from foreign sources could see a higher cost increase, said Jeffrey Perkins, vice president of operations for Motorlease Corp.
"Making the underlying assumption that all of the steel and aluminum used to build a single average U.S. vehicle, is sourced from one of the locations subject to the tariffs, I approximate the cost to be in the range of $250 to $300 per vehicle," Perkins said. "This value however is arrived at solely based on the assumption of a straight pass through of the tariffs and does not take into account any of the additional costs that a manufacturer or supplier may bare such as new contract negotiations and additional carrying costs. While the additional $250 to $300 may seem strong as a percentage on a less expensive vehicle, vehicles priced in the mid-$20,000 to mid-$30,000 where we see most of the current small and mid-size SUV/crossovers priced today equates to about a minimal 1% increase."
Other fleet management experts said the tariffs could lead domestic steel producers to create more jobs.
"While it’s likely there will be short term employment gains in the protected industries, for those manufacturers that have depended on imports for some of their supply chain raw materials there is the strong possibility they will pass through to consumers and businesses their increase cost of goods," said Tom Coffey, vice president of sales and marketing for Merchants Fleet Management. "Overall, it is very possible we will see an impact in vehicles prices."
Originally posted on Automotive Fleet