The long and short of it is this: affordability is challenging without the tariffs, so for consumers (and companies) they’re not going to be advantageous. . .

By Gary S. Vasilash

“First, let’s start with the ‘T’ word,” Mark Templin, executive vice president and chief operating officer, Toyota Motor North America (TMNA), began in a presentation to a couple hundred journalists at TMNA headquarters in Plano, Texas, today.

“No, not Toyota. I’m talking tariffs.”

And Templin began a measured explanation as to why tariffs are not going to be good for Toyota and other OEMs and will certainly not be good for the consumer.

“A 25% tariff on all imported vehicles is not sustainable longer term without significant price increases,” Templin said, adding, “And the industry already has an affordability problem.”

Affordability?

According to Kelley Blue Book, the new vehicle average transaction price in April was $48,699.

Were that 25% added to the average transaction price, that number would grow to $60,874.

Average.

Is anyone going to be getting a 25% raise anytime soon?

The Whole & the Parts

In addition to which, there are, Templin pointed out, tariffs on imported auto parts.

“It’s important to understand,” he said, “that supply chains are global, they’re complex, and they’re very fragile. Many of the suppliers”—which make things like parts that are used in shops and garages for purposes of repair—“are not capitalized for an abrupt tariff.”

Bottom line: the tariffs “will make servicing and repairing vehicles more expensive for customers.”

So for those who realize they’re not going to be able to afford a new vehicle and so will hold on to their existing one will discover that taking Old Reliable into the shop isn’t going to be an inexpensive operation.

Auto Is Really Important to the Economy

Templin pointed out that the auto industry added more than $1.2-trillion to the U.S. economy last year, nearly 5% of GDP.

Not only does the industry directly employ 10.1 million people in the U.S., there is a multiplier effect whereby each auto job creates nine more jobs.

Hobbling the industry with tariffs is probably not a good economic decision.

Templin pointed out that Toyota has 14 plants in North America, 11 of which are in the U.S.

“Nearly 80% of what we sell in the U.S. is built in North America, and over half is built here in the U.S.”

So, some might think, why not simply move more production into the U.S. and thereby avoid the tariffs?

It Takes More Than a Moment

“Contrary to what some may think,” Templin said, “the auto industry has long product life cycles, and we can’t simply move production facilities overnight.”

And if a world-class manufacturer like Toyota can’t do it quickly, odds are those that are less adept are going to take a whole lot longer—assuming any companies are going to go down that road.

“Right now,” Templin said, “we are in a wait-and-see mode.”

Toyota execs are working to provide as much stability as they can for employees, dealers and suppliers.

“Our message to all of them continues to be: ‘Stay calm and stay focused on the customer.”

“At Toyota, we make decisions based on consumer and market needs rather than the policy direction of the moment. So our thinking is long-term,” Templin said.

The company has invested some $50 billion in the U.S. over the past 68 years. Yes, they think long-term about their operations here. Of that there can be no doubt.

Templin said that he’s met with policy makers in Washington and that he believes they understand the importance of the auto industry to the U.S. economy and the consequences of tariffs.

Let’s hope he’s right.