U.S.-JAPAN TRADE SHOWDOWN : A Risky Road : Threat of Huge Tariffs Could Pose Problems for Buyers
The U.S. plan to impose massive tariffs on a small number of Japanese luxury automobiles could pose a number of problems--and opportunities--for people who own or want to buy affected models. Even if the tariffs are eventually not imposed, the threat of sanctions now raises questions for consumers.
Here are answers to some key consumer questions about the sanctions.
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Q: Which cars would be hit with tariffs?
A: U.S. trade officials said they target ed 13 models: Acura Legend and 3.2 TL; Lexus LS 400, SC 400, SC 300, GS 300 and ES 300; Infiniti Q 45, J 30 and I 30; Mazda 929 and Millenia, and Mitsubishi Diamante’s 4-door sedan.
It’s worth noting, however, that this list is preliminary and could lengthen or shorten before tariffs are imposed--assuming they’re imposed at all. A final determination of whether tariffs will be imposed and which cars they would hit will be made June 28, U.S. trade officials said.
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Q: How would the tariffs affect the price I pay at the dealership?
A: The tariffs equal 100% of the dealer’s invoice price, which is roughly 15% to 16% lower than the sticker price, said Ted Orme, spokesman for the National Automotive Dealers Assn.
So if the dealer’s price for a car was $30,000, U.S. customs would collect another $30,000 from the importer, so the final cost to the dealer would be $60,000. In round numbers, that would boost the sticker price of a $35,000 car to about $65,000.
Dealers could pare profit margins--the $5,000 difference between the dealer’s invoice and sticker price--to sell cars. However, margins on these autos are far smaller than the tariffs, so buyers would face far higher prices, Orme said.
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Q: So does that mean the price of the cars will roughly double on June 28?
A: Not exactly. Dealers typically have 60 to 90 days’ worth of inventory on their lots, Orme said. The impact of the price hikes probably wouldn’t be felt until that inventory was depleted.
However, if tariffs take effect, they’ll be imposed retroactively on all cars imported after midnight May 20, trade officials said. So the clock starts ticking almost immediately, making it likely that tariffs would start to be felt in mid-summer.
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Q: I was thinking about buying one of the cars on the list, but not until this summer. Should I buy it now?
A: If you are sure about the car you want and can negotiate a good price today, it may be wise to buy now.
However, most experts believe there’s a good chance that these tariffs will never be imposed, that the United States and Japan will come to some agreement before the end of June. If that’s the case, you could end up paying more today than you would later because today’s uncertainty may drive up demand--and prices--for these cars.
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Q: Is there likely to be a “run” on these cars?
A: Maybe, depending on how seriously buyers take the trade sanction threat.
But some lessons can be drawn from the 1991 imposition of a 10% luxury tax on autos that sold for $30,000 or more. In the three months before the tax took effect, sales of luxury cars soared, says Thad Malesh, senior automotive consultant with J.D. Power & Associates in Agoura Hills. Sales dipped immediately thereafter, however.
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Q: Can I get around the tariff by buying in Canada or Mexico?
A: Not legally. Unless you try to sneak the car over the border--an illegal action--you would be considered an importer, trade officials said. When you drove the car into the United States, customs would impose the 100% duty on the purchase price.
In addition, cars made for the Canadian and Mexican markets do not usually conform to U.S. environmental and safety standards, says Ron Taylor, general manager of Rusnak Porsche/Audi in Pasadena. As a result, you could also be forced to have the cars modified to meet U.S. emission and safety standards, which can cost several thousand dollars more.
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Q: Will this trade battle affect the price of American-made models?
A: Some dealers of Japanese models say reduced competition could cause domestic manufacturers to hike prices. However, Detroit auto makers say that’s bunk. The Big Three manufacturers issued statements on Tuesday saying the tariffs would have no impact on their pricing strategies.
“Contrary to the doomsday advocates of the Japanese, we are doing just the opposite,” adds Jason Vines, a spokesman for Chrysler Corp. The auto maker just cut prices on many of its models, including the luxury sedans that would most closely compete with the cars targeted by the tariffs.
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Q: How will luxury European models be affected?
A: Most auto analysts believe that luxury European cars are the most likely beneficiaries of any tariff. That’s because buyers of luxury Japanese cars generally shun domestic makes, J.D. Power’s Malesh said. If they’re forced to choose another model, they’re more likely to pick a BMW or Mercedes than a Cadillac, he adds.
However, availability may be hit harder than price, Malesh said. Imports are ordered months before they actually arrive and are limited in number. If there’s a huge demand for European makes because traditional buyers of Japanese luxury cars are priced out of that market, there could be shortages of certain popular alternatives.
“It would create imbalances, where you would have shortages of some products and an abundance of others,” he said.
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Q: What about leases? Can I get around the price hike by leasing instead of buying?
A: No. If the tariffs go into effect, they’d be reflected in lease prices too, experts noted. That’s because lease rates are calculated more or less the same way purchases are. However, the big payment comes at the back end with a lease, instead of in a front-end down payment when you buy. Dealers may be able to keep monthly payments low, but the back-end payment--the residual--would end up much higher as a result.
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Q: Will the price of used Japanese luxury autos rise too?
A: Absolutely, said Scott Kilmer, author of “Everyone’s Guide to Buying a Used Car.”
“The used car business is one of the last bastions of true capitalism,” he said. “When the price of new cars goes up, the used ones go up too.”
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MORE TRADE COVERAGE:
* U.S. announces sanctions. A1
* Luxury car dealers worried. A1
* Sanctions often are unused. D2
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
A Closer Look
WHAT EACH SIDE SAYS
The foreign trade standoff between the United States and Japan stems from American efforts to open up Japan’s domestic auto market and reduce its trade deficit with Japan.
The United States wants:
* Japanese auto makers to renew a 1992 pledge to boost purchases auto parts from suppliers in the U.S. and other countries.
* An increase in the number of Japanese auto dealers that sell American cars.
* Japan to relax rules considered a barrier to U.S. auto-part sales in Japanese repair shops.
Japan has resisted the demands. It claims:
* The pledge to boost purchases of foreign auto parts contradicts free-trade principles.
* Japan’s domestic market is already open and U.S. companies have failed to work hard enough to exploit it.
* Financially troubled Japanese auto makers are unable to substantially boost their purchases of foreign auto parts.
WHAT HAPPENS NEXT
* This week: Japan is expected to ask the newly formed World Trade Organization to try to prevent the United States from imposing the tariffs on luxury cars from Japan.
* May 20: U.S. Customs to begin applying higher tariffs on 13 Japanese luxury car models. However, importers will not have to pay tariffs unless they are formally adopted.
* May 22, 23: U.S and Japanese trade negotiators to attend a previously scheduled meeting in Paris of the Organization of Economic Cooperation and Development. The two countries may discuss auto dispute in separate talks.
* June 8: Scheduled public hearing by the U.S. Foreign Trade Office.
* June 15-17: President Clinton and Japanese Prime Minister Tomiichi Murayama participate in a summit of industrialized nations in Halifax, Nova Scotia, where they are expected to discuss the auto dispute.
* June 19: Last day for public to comment on proposed tariffs.
* June 28: United States to issue and implement final list of punitive tariffs and autos that will be affected.
--JESUS SANCHEZ
LUXURY CAR SALES
U.S. sales of BMW and Infiniti have been growing over the last few years. Most other luxury cars, however, haven’t done as well. Sales, in thousands:
1994
Lexus: 87.4
BMW: 84.5
Cadillac: 210.7
Infiniti: 51.4
Acura: 112.1
Mercedes: 73.0
Lincoln: 179.2
Source: Automotive News. Researched by JENNIFER OLDHAM / Los Angeles Times
THE TARGETS
The United States has proposed raising the tariffs on 13 Japanese luxury autos from 2.5% to 100% as a result of failed trade talks. The higher tariffs are scheduled to be formally adopted June 28 and would apply retroactively to cars imported into the U.S on or after May 20. Here are the models and U.S. sales:
1994 1995 Model Sales Sales to date Acura Legend 67,426 8,908 Acura 3.2 TL 0* 0* Lexus LS 400 22,443 7,490 Lexus SC 400 7,392 1,286 Lexus SC 300 4,537 1,069 Lexus GS 300 13,939 2,353 Lexus ES 300 39,108 12,361 Infiniti Q 45 11,419 3,746 Infiniti J 30 22,778 9,252 Infiniti I 30 0* 168 Mazda 929 9,206 1,619 Millenia 24,423 6,167 Mitsubishi Diamante (4 door sedan) 14,918 3,198
* New model, not shipped yet.
Source: Ward’s Automotive Reports.
