Trade Tariffs: Part-Sourcing and Profitability
Earlier this week, NJGCA participated in a webinar exploring how the ongoing tariff uncertainty may impact the automotive landscape in unforeseen ways. The webinar was hosted by the Auto Care Association, a national group representing varying facets of the overall auto care industry.
Most of the presentation focused on how the current tariff uncertainty may affect the global supply chain. On the surface, that may seem simple, but it includes everything from raw materials, refining those raw materials, auto parts manufacturing, complicated automotive systems, and any number of things in between. All of which could be distilled into a shop’s ability to source parts affordably.
The presenters touched on a highly-technical and nuanced legal analysis of these tariffs; including some of the negotiation gamesmanship among world leaders and a series of court cases that have been filed (both in the US District Courts, and the US Court of International Trade). A portion of the presentation discussed the International Emergency Economic Powers Act (IEEPA), which seemingly gives the President the legal authority to renegotiate tariffs directly with foreign governments after an “emergency” is declared under the National Emergencies Act. While most of the recent tariff-related news has focused on China, Canada, and Mexico, there has also been some attention on markets such as Brazil, India, numerous European nations, and others. The webinar also touched on the Federal Maritime Commission, the international “choke points” (policies and practices) which have affected shipping conditions, and “Section 232” tariffs that pertain to products derived from steel, copper, and aluminum.
It was hefty stuff, to be sure.
Tariff analysis aside, the most telling portion of the presentation included some of the on-the-ground feedback the group has received in surveying business owners on these ongoing issues.
We obviously cannot reproduce the entire presentation or survey, but thought to touch on a few highlights and some notable takeaway points.
Nearly all aftermarket automotive repair establishments surveyed by the Auto Care Association are concerned about the current “tariff wars”, especially as it concerns parts sourced from China, Canada, Mexico, and other nations. This anxiety is affecting not only retail pricing, but is forcing owners to reconsider cost structures, sourcing strategies, and their business model. In fact, over 90% of shops are worried about “trade-related challenges”, while 60% of shops are following how the current climate is affecting raw materials (such as steel and aluminum, and the implicated “Section 232” tariffs).
Respondents’ fears over this issue have increased over time; which logically makes sense as a small, short-term hit on profit margins can be endured, but owners become increasingly more jittery as the uncertainty continues.
Interestingly, this anxiety is also affecting small, independent shop owners differently from large or fleet maintenance operators. That is, while larger repair shop owners and fleet operators feel more optimistic about surviving any upheaval, small shop owners are not nearly as confident. Survey results also indicate that over 90% of the auto care industry anticipates costs to rise and supply chain disruptions. What’s more, a large percentage will delay major business-related decisions until there is more predictability in the marketplace.
Looking at Chinese-made auto parts and systems in isolation, there is great concern and apprehension. Most small businesses (which the survey describes as under 50 employees) feel they have been (or will soon be) heavily impacted by the tariff wars. Of those shops that have begun to purchase parts from alternative sources outside of China, there is also skepticism and uneasiness. This is due in part to higher parts pricing, but also concerns about the quality and dependability of those parts over time. Many shops have begun to “experiment” as they transition; trying different brands/countries-of-origin to find what works best for their customers and operations.
In response to some of these issues, the Auto Care Association (and other industry business groups aligned with their concerns) have offered up alternative policy solutions.
For example, permitting a tariff transition period to allow for pricing adjustments as the supply chain changes; or reducing tariffs on non-US-produced products that are not economically feasible to manufacture domestically.
Regardless of the specific concerns, the one overarching reported challenge is uncertainty, and how such ambiguity will affect the long-term health of their businesses. Meaning, the quicker the tariff issues are settled and agreed upon, the quicker shops can navigate the new landscape to figure out how to safeguard profits and best serve patrons.
Have you changed your part sourcing or pricing practices because of the ongoing tariff landscape? Do you have any concerns over the short- or long-term?
Feel free to reach out to Nick (nick@njgca.org) or Eric (eric@njgca.org) with your thoughts and observations.
.jpg)
