Raise prices or cut into their margins, open or close factories: carmakers must soon make major decisions as the United States imposes stiff tariffs on imported vehicles, reports BSS.
The 25-percent tariffs that the administration of President Donald Trump is imposing as of April 3 will apply to cars and car parts not manufactured in the United States.
But all carmakers will be impacted, as even US automakers import foreign parts and manufacture vehicles for the US market in neighbouring Canada and Mexico.
The Bank of America estimates that the tariffs will apply to 7.3 million vehicles, or eight percent of global sales, and will expose carmakers to added costs and chaos.
One, albeit temporary, strategy to cope with the new tariffs is to avoid them by shipping as many vehicles as possible to the United States before they come into force.
"Shipments have expanded quite a bit to absorb the first shock" of the tariffs, said Fitch Ratings Director Cigdem Cerit.
"Everyone did build a little buffer," she added.
South Korea's Hyundai was among the automakers that most built up its stock of cars, according to Cox Automotive, an automotive services firm. Meanwhile, Stellantis ate into its ample stocks that had weighed on results in previous quarters.
But the stocks will likely last no more than a few weeks, especially if Americans rush to dealers to snap up any remaining deals.
"After an initial, short surge in buying, we expect vehicle sales to fall, new and used prices to increase, and some models to be eliminated if tariffs persist," said Jonathan Smoke, chief economist at Cox Automotive.
It is an open question about how much car prices will rise and to what extent sales will fall.
The Bank of America estimates that US vehicle prices would rise by approximately $10,000 if manufacturers fully pass on the cost of tariffs and maintain their profit margins.
"However, we don't expect consumers would absorb the price increase in full," said analysts at the bank.
Carmakers "are more likely to sell vehicles at breakeven until they rebalance the production footprint," it said, estimating that US consumers would see price hikes of around $4,500.
Mid-range imported vehicles are likely to feel the pinch, such as the Chevrolet Silverado pick-up and the Toyota Rav4 SUV.
But even manufacturers like Porsche could have trouble passing on the cost of tariffs on low-end models like its Macan SUV, said Fitch's Cerit.
Ferrari was the first carmaker to announce a hike in prices -- as much as 10 percent -- on vehicles sold in the United States, its top market.
A major question is whether consumers continue to buy the same vehicles at a higher price, said Deloitte auto analyst Guillaume Crunelle.
He believes that is unlikely as "people buy in the price bracket that corresponds with their means".
Bd-pratidin English/Tanvir Raihan
