Tariffs & Politics Make Strange Bedfellows

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Last Updated on: 7th May 2025, 12:21 am

Tariffs in the US are causing significant market distortions as manufacturers and customers attempt to navigate the Byzantine tariff structure so proudly created by the failed US president, who has said quite clearly they have gotten world leaders lining up  “to kiss my ass.” Apparently, that is what he thinks governing is all about.

Keith Naughton, writing for Bloomberg Hyperdrive, explained on May 5, 2025, that car dealers all across America are seeing a surge in new car sales as people rush to snap up available inventory that will not be affected by those new tariffs when they kick in later this month. The buying frenzy has slashed new car inventories by 24 percent compared with May a year ago. That is “one of the largest drops we’ve seen in several years,” Jonathan Smoke, chief economist for market research at Cox Automotive, told Naughton. New car dealers today have 61 days worth of cars on hand, the lowest level in nearly two years and down significantly from a 98 day supply in January.

That may seem like good news for dealers, but Smoke thinks it is hiding a stinger that will come into play later this year. Once the stockpile of pre-tariff cars is exhausted, “you’ll see a demonstrative slowing in sales,” Smoke warns. The geniuses who cooked up this scheme are rushing to blame Joe Biden, George Soros, or Hillary Clinton for the mess they have made, but the truth is, by the middle of this year, hard working Americans are going to experience sticker shock like never before as the price of new cars ratchets up thanks to Donald Trump’s policies.

What Will Automakers Do?

General Motors this week said it expects the tariffs will wipe out $5 billion in profits this year. Stellantis and Mercedes have scrapped their economic forecasts for fiscal year 2025, while Ford says it expects to take a $1.5 billion hit to its earnings. GM and Volkswagen have said they plan to absorb much of the tariffs while working to offset them. Other companies are cutting back on sales incentives to preserve inventory.

Low-cost financing deals, which are critical to the sales process when borrowing costs are high, will likely disappear. The number of zero percent loan deals in the US market has fallen to the lowest level since 2019, Smoke said. The bottom line is: less inventory, higher borrowing costs, and higher priced new cars brought to you by the Moron of Mar-A-Loco. You’re welcome, America.

JD Power estimates those tariffs will reduce US auto sales by about 1.1 million units on an annual basis, or roughly 8 percent. Surging car sales are expected to slow down in the second half of the year and lose even more steam in the fourth quarter as prices rise due to tariffs, it says. At Black Book, analysts expect a 5 percent increase in transaction prices will push sales down to about 14.9 million vehicles in 2025 as compared to roughly 16 million in 2024. If manufacturers pass the tariffs on completely to customers instead of absorbing part of their costs themselves, Black Book thinks sales could be as low as 13.6 million vehicles this year.

Yesterday, Bloomberg reported on one James Benson, Jr, a longtime Ford assembly line worker who welcomes the cockamamie tariff plan because he thinks it will make his job more secure. Well, Jim, slashing a few million sales is not going to save your job. Instead it’s likely to put you in the unemployment line along with thousands of your buddies. Way to shoot yourself in the foot, Jim.

Ford CEO Jim Farley exposed the confusion roiling the car industry this week during the reveal of the new electric Ford Expedition. He vacillated a bit on how his company would handle price hikes and pledged to hold the line on pricing — unless other companies raise their sticker prices. “We have to watch what our competitors do,” Farley said. “They have $5,000 to $10,000” in additional costs per car from tariffs. “Will they absorb those? Will they pass them on to consumers?” Most graduates of the Wharton School would say such policy confusion is bad for business, but one such graduate apparently was absent the year day that topic was discussed.

Higher Prices Lead To Strange Poltics

Most analysts expect the price of new cars and trucks will inch up as carmakers quietly discontinue discounts. They might not raise the sticker price, but “if they remove incentives, that effectively raises the cost for a consumer,” said Eric Lyman at Black Book. “But the optics in terms of the price on the website will not change.”

The prospect of higher prices for new cars and trucks has prompted 35 Democratic members of the House to vote with Republicans on a bill that would prohibit California from enforcing its proposed ban on cars with internal combustion engines beginning in 2035. Representative Lou Correa, who represents parts of Orange County, California, drives a hybrid car and wants the federal government to tackle climate change. But he voted for the bill anyway.

In an interview reported by the New York Times, he said, “I don’t like giving Trump a win.” So why did he vote the way he did? Because electric vehicles remain expensive and impractical in his heavily blue collar district, he said. “We just finished an election where every poll I’m seeing, everybody I talk to, says, ‘You guys need to listen to the working class, the middle class people,’” Mr. Correa said. “I’m listening to my constituents who are saying ‘don’t kill us.’”

The irony should be obvious to CleanTechnica readers. California proposes to ban conventional cars precisely because the emissions they spew in their wake are killing people and will continue to kill people or afflict them with health issues until they are banned. But the spate of new tariffs will make the cost of new cars higher, which in turn will increase the cost of used cars, and so we must all continue sucking in fine particulates and other nasty stuff because America can no longer build affordable automobiles even though other countries can.

Environmental advocates were shocked by the number of Democrats who voted for the bill. Senator Alex Padilla, Democrat of California, said he was “disappointed but not surprised” in the number of lawmakers from his party who voted against the policy. “I chalk it up to the intense and misleading lobbying by the oil industry,” he said, and accused Republicans of “misguided and cynical attempts to gut the Clean Air Act and undercut California’s climate leadership.”

According to federal records, since January, 2025, oil and gas companies along with automakers, car dealers, and free market groups spent more than $10 million lobbying lawmakers about the California plan. In addition, the American Fuel & Petrochemical Manufacturers kicked in over $1 million. “The car companies have been crawling all over them for weeks and months,” said Rena Steinzor, an emeritus professor of administrative law at the University of Maryland.

Pocketbook Issues

Thomas Pyle, president of the American Energy Alliance, a conservative research group that supports fossil fuels, said opponents just had a better argument. “At the end of the day, people realized they don’t want to be forced into certain types of vehicles. People will vote with their pocketbooks, and the price of EVs for a lot of people are out of reach.”

Representative Correa told the Times one of the most compelling arguments he had heard about the impact of the California policy came from a Chevrolet dealer in his district. “He said to me, ‘Lou, this is going to force me to raise prices on top of the tariffs. It’s going to be a perfect storm for us.” Mike Murphy, a Republican strategist and supporter of electric vehicles, agreed. “Bans are tough in a live-free kind of country.” He said that electric vehicles needed to be a market success rather than a regulatory demand. “You have to win the hearts and minds of consumers,” he said.

It doesn’t take a Ph.D in mathematics to know the game is rigged. Because no one pays for the health and environmental impacts of internal combustion engines, manufacturers of those vehicles are granted a silent government subsidy that amounts to billions of dollars every year. No one is supposed to point out this flaw in the arguments of the fossil fuel advocates. We are suppose to keep it all on the down low, but the truth is, given a level playing field, conventional cars would be crushed in a head to head comparison with electric vehicles.

If that level playing field existed — one in which all the costs were included — the price of gasoline would be over $10 a gallon and there would be a stampede of people demanding to purchase an EV. No mandates would be needed; the marketplace would work as intended; and the result would be fair to all. But fossil fuel companies are terrified of the truth and so they form institutes and lobbying groups to muddy the waters so they can continue raking in obscene profits from making people sick and degrading the environment.

Maybe mandates are not the best way forward, but clearly something is needed to blast people out of their complacency. Perhaps telling them the truth might be one way to short circuit the fossil fuel myth machine.