How Trump’s Victory Could Affect Car Buyers

LeeAnn Shattuck (00:01)

Hey everyone, welcome back to The Straight Shift. I’m LeeAnn Shattuck, The Car Chick Well, we had an election last week and anytime a new administration comes in, the favorite pastime of economists, lawyers, industry experts, and of course the media is speculation. How will this new administration’s policies affect any given industry?

The automotive industry is no exception, which shouldn’t be surprising given that automakers and their suppliers are America’s largest manufacturing sector. They’re responsible for a full 3 % of American gross domestic product. Now that may not sound like a lot, just 3%, but believe me, it is a huge chunk of the economic pie for just one industry to hold. It’s one of the most important industries we have, which is why we bailed them out several years ago, because if they fail, the whole economy goes to pot.

So what does a Trump victory mean for the automotive industry? The day after the election, I was flooded through my email with articles from Automotive News. Automotive News is our inside industry news source. It’s the top source of inside industry information across North America, Europe, and China. I pay big bucks every year for that subscription so that I know what’s going on behind the scenes and can share that information with you guys.

These aren’t just wild speculations nor are they politically motivated. It’s just an analysis by the corporate attorneys who specialize in regulatory matters, economists, top industry experts and executives. These are people that are trying to anticipate what might happen so they can mitigate the risk in their businesses. It’s based on what the incoming administration has published as their 100 day plan.

I don’t deep dive into the economics and the legal issues within the industry just because of my role with my car buying service. Remember, I have a degree in quantitative economics, so I’m just a little bit of a nerd about this stuff. I just find it very fascinating.

I wanted to share this analysis with you, not from just the impact to the automotive industry from the perspective of the automakers and the dealers and the other big players, but I want to flip it around. How might changes with the new administration impact the automotive industry in ways that will affect you as the consumer?

So I’m going to put politics in a box over here and I’m going to put my economist hat on and let’s get into the analysis. How might you as a car buyer and a car owner be affected going into 2025?

The first thing that could change is the CARS rule could be overturned. What’s the CARS rule, you ask? Well, CARS stands for Combating Auto Industry Scams. It’s a rule that the Federal Trade Commission put into place to make car buying and leasing more honest and transparent. Novel idea, right? You know, why have we not had this for our entire lives?

Well, how does it even do that? First of all, it prohibits misrepresentations about material information, the important things like pricing, cost, availability of vehicles. It’s about prohibiting dealers from using bait and switch tactics to get people onto the lot.

So for example, a common bait and switch tactic that we see is the dealers will advertise a really low price for this new car. And people were like, wow, that’s amazing. And they would rush down to the dealership and they’re like, I want to get this deal. And they’re like, well, that, that deal, that, that, was only on this one car and it sold, but we can sell you one of these higher priced cars. They never had that car. It was all complete, bullshit, but they use it as a tactic just to get people onto the lots.

Well, the CARS rule makes that illegal. It requires them to clearly disclose the offering price, the actual price that a consumer could expect to pay for the car. So for example, a lot of dealers in certain states, know, I’m looking at you Florida and Virginia, will advertise online a price of a new car.

What they do is they take the MSRP and they remove the destination charge, which is usually anywhere from a thousand to two thousand dollars. And that’s a charge that is a part of the MSRP. It’s not an extra add on. It’s something that the manufacturers build into it. But then those dealers will pull that out and put it on their website as the base MSRP, but they won’t call it base. So it makes it look like their MSRP on the car is cheaper than the dealer across town.

It’s the same car. It has the same MSRP, but they’re using that little pricing quirk to lure you in thinking that you’re going to get it at a lower price. Then when you actually go to buy the car, magically that destination charge gets built back in because guess what? It was a part of the price of the car that the manufacturer charges, not the dealership.

So the CARS rule prevents them from doing this. They have to clearly disclose the price that you could realistically pay. Doesn’t mean that you can’t negotiate a lower price, but they can’t do a bait and switch tactic with their pricing.

The CARS rule also requires them to get informed consent from consumers before they charge you for anything. So this is to get rid of those hidden fees that they bury in pages and pages of contracts that you don’t necessarily read through. They’re like, sign here, sign here, you’re done, and you didn’t know that there were all these fees buried underneath piles of paperwork. So you have to be shown there’s this fee, there’s this fee, there’s this fee, there’s this fee, and you have to sign off on all of that. Therefore, no hidden fees.

They also can’t charge consumers for add-ons that don’t provide any benefit. This would restrict dealers from charging those stupid market adjustments that we saw so much during the pandemic, charging $2,000, $5,000, sometimes $10,000 over MSRP just because they could.

This is about combating unethical sales tactics that not only cost consumers billions of dollars a year, but it also hurts the honest dealers. The ones who say, hey, we’re not going to play these games. We want to be honest and transparent with our customers because it’s just the right thing to do. So it really protects both ends.

Now I know what you’re thinking. What are you talking about? This could not possibly be a law because dealers pull this crap all the time. Well, that’s because it hasn’t gone into effect yet. It was supposed to go into effect this past July 2024. But it’s tied up in litigation. It’s currently being contested by the National Automobile Dealers Association, and they’re up to the, I think it’s the Fifth Circuit Court of Appeals.

So it hasn’t actually rolled out yet. if that rule gets canned entirely and that litigation goes away and the CARS Rule gets the ax, which is one of the things that could very likely happen, how does that impact car buyers? Well, right now it really doesn’t.

It just means that the status quo will continue. Same business as always. It’s just the same old as one of my clients coined it bullshittery will continue.

But it also depends on what state you live in. States like New York and California already have state level laws to protect consumers more so than a lot of other states. Here in South Carolina, where I live, we don’t even have vehicle safety inspections. It’s the wild west here. So, you always have to be aware.

But your strategy shouldn’t change. You should always protect yourself by following the car buying process that I teach in my online course that’s specifically designed to help you identify and combat the bullshittery. I’ll tell you a little bit more about the course at the end of this podcast.

While the automotive makers and dealers might be a lot happier with less regulation around them, not all of the potential changes that the new administration might bring will help the automotive industry.

In fact, some things could actually be very, very costly to the automakers. Let’s start with talking about the potential impacts to the electric vehicle market.

On the one hand, new policies might loosen some of the stringent requirements and the aggressive timeline for electrification that was set by the outgoing administration. And that would take some of the pressure off of the vehicle manufacturers who were rushing to meet those timelines.

It’s causing them to rush vehicles to market, which causes some quality control issues, shall we say. Now that rush to market and the quality control issues associated with it were already happening because of just the aggressive nature of the EV market globally. They’ve had to do that just to compete, but there’s always extra pressure when you have a deadline that’s set by regulation. So that could benefit the automakers.

But on the other hand, the Trump administration is very much expected to target the current tax credits on electric vehicles. And that will definitely be to the detriment of the automakers who have invested millions and millions of dollars in developing those electric vehicle drivetrains. they’ve done that in an effort to keep up with the global competition. It also means that consumers can expect that lovely $7,500 EV tax credit to go bye bye.

No more killer deals on electric vehicles.

Since demand for EVs has strongly depended on those incentives in the past, when those incentives go away, if they do, we could see a further drop in EV sales. It’ll make it less attractive to US buyers who are already kind of falling out of love with electric vehicles in large parts of the country. So if you’re considering buying or leasing an electric vehicle, I would recommend you do so sooner rather than later. Get those big discounts while you can.

I personally think there would have to be some pro-EV policies put in place by the new administration just because Elon Musk played such a huge role in Trump’s victory and his campaign. So I would think that the new administration would have to at least appease him. And I think that some of those policies, will probably come in the form of allowing the robo taxis from Tesla to roll out faster by putting policies in place that remove the roadblocks.

Hhaving a federal standard for autonomous vehicles might actually be a good thing because it is kind of a whole new world of what’s it going to be like when we’re driving down the road and we’re sharing it with a bunch of autonomous cars that are just no driver being driven by a computer.

That can be a little bit scary. And right now, in places where those vehicles are operating, how to regulate them is up to the states. And honestly, it’s a little bit of a mess, and the insurance companies aren’t sure how to handle it. It just created a lot of uncertainty. So having at least some federal level standards and guidelines might be a useful thing to have.

Now let’s talk about the current charging infrastructure for electric vehicles across the country. The current government has been working to establish a federal standard for EV charging and the rolling out funding for the National EV Infrastructure Program that was a part of the Inflation Reduction Act. The goal of that is to make public charging stations much more readily available across the American highway system, a lot like gas stations are now.

So if you want to take a road trip in your electric vehicle, you will have more places to stop along the way to refill your electrons while you get some lunch. That’s one of the biggest barriers to EV adoption in the U.S. is simply because our country is so darn big and spread out and we like our road trips and the battery technology just isn’t necessarily there to go long distances. it’s a lot easier to fuel up a gas powered car than it is to fuel up an electric car, so to speak.

If you haven’t listened to my podcast from last week where I interview one of my clients about his personal experience owning an electric vehicle, specifically in the South where we don’t have a lot of infrastructure, you might want to go back and listen to that. Folks living in urban areas where there’s a lot of infrastructure, the Northeast, California, that’s no big deal as long as you’re not trying to take a road trip down here to the South to our beaches.

On the other hand, if Tesla is granted an exclusive contract to roll out all of their devices, their charging stations, we might still see that infrastructure expansion. It just might come in a slightly different form, but they’ve been heavily involved with the program from the beginning anyway.

Okay, the last thing I want to talk about are tariffs. The topic of tariffs played a huge role in this election cycle. And it’s played a big role in our foreign policy for decades, but especially in the last eight years. The first Trump administration imposed some tariffs on China, and then the Biden administration continued those and even increased them in certain areas. And now the second Trump administration is saying that they’re going to impose really strict tariffs on China and possibly on goods from other foreign countries.

Before we get into the potential impact of increased tariffs on the industry, we first need to clarify what tariffs are and how they really work. So again, economist hat going on.

A tariff is a tax on imported goods. It’s aimed at protecting local jobs and industries from foreign competition. The idea is if the foreign products over here are more expensive, then you’ll buy more of the American-made products. Sounds like a great idea, right? Well, in the past, that used to work. But the challenge now is that there are so few goods that are made in America anymore or anywhere else in the world. So much comes out of China.

A recent report based on a survey of North American manufacturing executives said that more than 90 % of the manufacturing companies across North America have moved at least some of their production, if not a significant amount of their manufacturing production overseas. And a lot of that is to China, especially from the U.S.

China is now the world’s top manufacturing country. They account for 32% of the global manufacturing output. That’s huge. And of course, it’s largely due to their cheap labor costs and their lack of environmental and safety regulations. You can just manufacture things a lot more cheaply in China than you can in the US or Canada or any other place in the world.

Even the German automakers have been outsourcing their parts manufacturing to China or buying parts from Chinese companies to put in the German cars, things that we never thought would happen.

So we’ve already seen some pretty steep tariffs on Chinese-made goods like computer chips, lithium-ion batteries, other critical components to manufacturing cars. And nearly every brand of car, every model made in the entire world has at least some, if not a whole lot, of Chinese parts in it. So when you increase the cost of those parts to build the cars, even if the cars were, built in the United States, they still have to import those Chinese parts. Those parts cost more, therefore it costs more to build the car. Therefore, they charge us more to buy the car. It’s just how the costs get passed on to the consumer.

The US has even imposed a 100 % tariff on Chinese electric vehicles, essentially barring China from the US car market. This is just part of our ongoing trade war with China, but it’s intended to protect the U.S. automakers from having to compete with Chinese made EVs. And that’s a competition we would probably lose, honestly.

You’ve probably heard both Trump and Biden say how, if Chinese EVs would flood the U.S. market with these cheap, low quality vehicles, it would just pull down the quality of the whole market, what I call the Walmart effect. Well, yes and no.

In many ways, and what they don’t really want to talk about, is that China is actually a decade or more ahead of us in a lot of EV technology. Some of the electric vehicles that they make and sell in China are pretty freaking awesome, to the point where one of the top GM execs has bought some of them to study, take apart and try to reverse engineer them because they are so far ahead of us in that technology.

GM is even in talks with one of the top Chinese tech companies to buy their EV batteries. But they would be assembled here in the United States, which would get GM out of paying a lot of the tariffs, depending on how they’re worded and how they work. But it would give GM a lower cost source of batteries. And it would bring jobs here to the US because they would build their assembly plant for these batteries somewhere in the US, probably Texas or somewhere else in the South. That can actually be a game changer for EV batteries for the US automaker. So I kind of hope that actually happens.

So just to clarify, the tariff is a tax imposed on imported goods. That means despite what Trump has said about, China pays for the tariffs. No, sorry, they don’t. That’s not how tariffs work. The tariffs are paid by the company that is importing the goods, not the company that is exporting the goods or the country that’s exporting them.

When the goods come into the US port, they clear customs and then that tariff, that tax, it’s called a duty, is charged. It’s paid on the spot by the company importing those foreign goods. So that’s how it increases the company’s costs, which almost always get passed on to consumers. That’s just the way it works. We can’t avoid it.

That’s why tariffs, in general, are not a great policy. But sometimes we got to do what we got to do when we’re in an economic war with a country that’s become as powerful as China. So we’ll just have to see what happens.

If you want to see an example of how this has been working to date, because we’ve had tariffs on Chinese goods for about eight years now. And if you do any shopping on Amazon… Right, like who doesn’t shop on Amazon? I swear, the Amazon fairy comes to my house every day. You may have noticed that the prices have been getting higher, especially on those cheap Chinese goods, the parts, the electronics, all those things we love to buy. Those prices have been going up and that’s because of the increasing tariffs over the last eight years. So all of those things that we love to buy that are made in China could continue to get more expensive, including the parts that go into our cars.

That won’t just affect the price of the new cars that you are buying. Remember, those are the same parts that are used to maintain and repair your current vehicle. I’ve got an 04 Mini Cooper S, her name is Maggie, and she’s a German car. But as I have had to replace parts on her over the years, because she is old enough to drink now, those parts, even when I buy them, original equipment parts, many, many of them are manufactured in China.

When we see an increase in those parts, we will also see an increase in what it costs to maintain and repair our vehicles. And in terms of repair costs, that also means the insurance companies. So if it costs the insurance company more to fix your car, if you get in a wreck, guess what that does to your insurance premiums? Yep, those go up too.

So everything in the economy is this domino effect. If more tariffs on imported goods, especially from China, are implemented, then our costs within the automotive industry for buying and maintaining our vehicles is going to go up. That’s just a reality.

If you remember from my first podcast as a part of this relaunch, I talked about the state of the computer chip industry and how that was completely messed up by the pandemic. That’s because 80 % of the world’s computer chips, especially the ones that are automotive grade, are still made in China. We’re working to change that. But as long as we rely on those Chinese built computer chips, that’s going to increase the cost of our cars. Really, all of the electronic goods that we can’t seem to live without these days.

Those increased costs to the automakers are going to put more pressure because they are already desperately trying to cut costs. Stellantis, who owns Chrysler, recently cut 400 jobs at their Detroit parts plant, and they are planning on cutting as many as 1,100 jobs at their Jeep factory in Ohio in a desperate effort to cut costs.

So if their costs continue to increase for their cost of goods sold, meaning the cars themselves, again, they’re gonna have to figure out ways to make cuts in other areas, because there’s only so many price increases that the market can bear. And we’ve already seen slowdown in car sales the second half of 2024. So this is a lot of the reason that the industry engages in this speculative analysis, because they’re trying to mitigate their risks. They are definitely worried about what could happen if we have higher tariffs.

The bottom line is nobody really knows for sure what’s going to happen when there’s a change in administration in our federal government. Changes always do happen, but what changes, how long will it take to implement them, and will they benefit consumers or will they be to the detriment of consumers? We just don’t know.

On the one hand, we could see higher prices, which we’re all pretty sick of dealing with since the pandemic. But on the other hand, we could see some national standards being implemented in new areas of technology where we currently don’t have any that might smooth the path into the future with these autonomous cars.

But no matter what happens, your car buying strategy does not change. I don’t care what rules or regulations get implemented, get cut, whatever. Your strategy should remain the same because we can’t rely on laws to protect us as car buyers, especially if we’re buying over state lines and we don’t know if there are rules in other states that might protect us or not. Doesn’t matter. You always have to look out for yourself.

That is where my “No BS Guide to Buying a Car: Your Inside Track to Getting the Best Deal” online car buying course comes into play. I teach all of my strategies that I use every day, my methodology for car shopping for my car buying clients. Anywhere in the country, doesn’t matter what the rules are, what the states are. It even tells you some of the states you really gotta look out for because they pull a lot of this crap all the time.

So if you’re interested in learning more about that car buying course, you can get to it from my website, thecarchick.com, or you can go directly to carbuyingcourse.com. I will put links to both of those in the notes below.

Well folks, thanks for joining me. if you haven’t subscribed to the podcast yet, please do so and share it with your community. And until next time, drive safely. I’m out of here.