Tariff Threat Brings Shock in Luxury Car Showrooms : Business: Customers, dealers debate the sanctions on Japanese products. One seller resents being ‘singled out.’
Steve Shuken makes a nice living at his Vista Lexus dealership in Woodland Hills, selling about 750 luxury automobiles a year. But he is worried that his days on cruise control may be coming to an end.
He is hopeful that the 100% tariffs on Japanese luxury cars proposed Tuesday by the Clinton Administration are merely a gesture of international bravura that won’t threaten the future of his $40-million-a-year business. But he is angry about being caught in the middle of a high-stakes trade dispute over which he has no control.
“While I can’t defend the Japanese,” Shuken said, “I think this is a poor way to retaliate--to single out certain models, certain American businessmen and the employees who work for us.”
In luxury car showrooms around Southern California and across the country Tuesday, there was shock, confusion, heated debate--and a healthy dose of skepticism--as sales staffs and their customers confronted the possibility of punitive tariffs on 13 auto lines from Japan. Many industry officials believe that the proposed sanctions will never come to pass, but rather are a way of turning up the heat on Japan to make concessions.
But if the sanctions are imposed, they could wipe out sales of those high-profit vehicles in the United States and result in the layoff of thousands of American workers--from mechanics to car salesmen. Southern California, the nation’s largest market for luxury vehicles, would be hit hardest.
Shuken’s fears were echoed at Acura, Infiniti, Mazda and Mitsubishi dealerships. But their potential bad fortune gave many U.S. and European competitors reason to hope. Mercedes-Benz and BMW, which compete with special ferocity with the Japanese in Southern California, could be the biggest winners.
Evan Kanes, sales manager at Westlake Mitsubishi, said the proposed tariffs may produce a dramatic shift in the luxury car business. “The people who will come out like bandits will be the Germans,” he said. “But if I sold Mercedes or BMW, I’d be the happiest guy in town.”
Still, the German auto makers and their dealers were not gloating. Some even expressed alarm at the intensification of the U.S.-Japan trade dispute, saying they support free trade and oppose unilateral sanctions.
“We are not in favor if it,” said William Lo, sales manager of Downtown L.A. Motors, one of the nation’s largest Mercedes-Benz dealers. “If they can to it to high-end Japanese cars, maybe they will do it to high-end German cars someday.”
The sanctions, which would take effect June 28, may have the unintended effect of boosting Japanese luxury car sales as consumers rush to beat the deadline. Other consumers may hurry to buy U.S. and European luxury brands in anticipation of higher prices as competition is reduced.
There is already some evidence this is happening. Ray Kianfar, a Prudential insurance salesman, bought a tan Lexus 300 two weeks ago after hearing about the possibility of sanctions.
“When I heard about the tariffs, I said, ‘Oh boy!’ ” he said, adding that his daughter is considering buying an Infiniti, which is on the tariff list. “I’m going to tell her to buy it now.”
And owners of Japanese luxury cars around town were fantasizing about reaping a windfall on the used-car market by selling their aging--make that “pre-owned”--autos, which owners hoped would gain in price with their newly minted counterparts.
On Tuesday, the sanctions were the talk of the Tustin Auto Center, where Japanese luxury dealerships--Honda’s Acura, Toyota’s Lexus and Nissan’s Infiniti--sit next to those hawking U.S. vehicles.
Despite the allure of the bronze and black luxury cars that ring showrooms here, even some salespeople said they believed that sanctions against Japanese-made vehicles are needed to open up that country’s markets.
But with such tariffs likely to damage their businesses severely, all said they hoped that the threat was only a last-minute negotiating tactic. And many other experts echoed those feelings.
“I would say the odds are about 90% that the sanctions do not take effect,” noted David Cole, executive director of the Office for the Study of Automotive Transportation at the University of Michigan.
At Tustin Lexus, general manager A. J. D’Amato said the tariffs would be a “knockout blow” to his dealership, which was the brand’s first in the United States.
“I don’t know how I would plan for a price increase like that,” D’Amato said. He now sells 1,000 to 1,200 cars a year but expects that tariffs would destroy his own brand’s ability to compete on price with European brands.
If the tariffs were imposed, D’Amato said, he would try to sell most of his $7.5-million worth of inventory now on the lot before they took effect. But he might have to lower prices to do so, he said, if consumers worry that the Lexus brand would disappear from the United States altogether.
In D’Amato’s showroom, however, where four jet-black models were parked in a square, a pair of prospective buyers said they thought the tariffs would be justified.
Kelly and Arlene Ditsworth of Yorba Linda, who own a Lexus SC 300, came to take a more expensive model on a test drive on Tuesday. Despite their admiration for Lexus, they expressed support for U.S. government action to force open the Japanese auto market.
“Something has to be done to show them we mean business on this,” said Kelly Ditsworth.
The sanctions are aimed at a vehicle segment that has been softening in recent years as consumers have balked at the high prices of luxury cars.
The Big Three once dominated the luxury sector, but lost ground to the Europeans in the 1980s when baby boomers gravitated to more prestige and performance. The Japanese emerged in the late 1980s and early 1990s as they introduced high-quality but lower-priced luxury vehicles.
Detroit’s luxury vehicles--Cadillacs and Lincolns--are more popular among consumers over 60.
The Europeans have gained ground in recent years as they have lowered prices and the Japanese have been forced to raise them because of the strength of the yen against the dollar.
Yet many believe that the sanctions may give the European and U.S. auto makers a license to raise prices. “You aren’t doing the American consumer one bit of good,” Shuken said.
But the specter of empty showrooms and employee layoffs failed to dampen the Dale Carnegie-like spirit of many men and women who peddle these high-priced vehicles. One salesman noted, half-jokingly, that the prospect of tariffs could be a “hell of a deal-closer.”
“It would be a good time to get a Legend or to get any of these cars that fall into this category,” said Mark Roche, a salesman at Santa Monica Acura. “Tell them to ask for me.”
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Sanctions at a Glance
Key elements of the trade sanctions proposed Tuesday by the United States:
Time frame: Duties tentatively take effect May 20, but that the decision would become final until June 28, after a period of public comment.
U.S. impact: Auto trade remains a prime concern for Washington since it makes up about 60% of Japan’s annual trade surplus with the United States, which hit a record $66 billion last year.
U.S. plants: Japanese luxury cars are made only in Japan, of nearly 100% Japanese materials. Less expensive models are made here.
Background: The sanctions were announced after 20 months of frustrating talks on the dispute ended in stalemate earlier this month, with the United States claiming that Japan had not done enough to open its auto market to American products.
Next step: Japan said it will immediately appeal to the World Trade Organization to block the proposed U.S. tariffs. The appeal will be made today or Thursday, said an official with Japan’s Ministry of International Trade and Industry, who spoke on condition of anonymity.
