USMCA Deal May Pressure White House to Add Auto Tariffs Too

First Up 10/09/18

USMCA Deal May Pressure White House to Add Auto Tariffs Too
U.S. trade partners and business leaders are hoping the Trump administration will refrain from the auto tariffs that have long been under consideration, but the recent U.S.-Mexico-Canada Agreement on trade may give the administration an extra incentive to add them, reports The Washington Examiner. That’s because one of the main features of the USMCA is a change to the “rules of origin” for autos: how much of the car must be made in North America for it to be duty-free. In order for those rules to have real teeth, according to trade experts, they may need to be accompanied by the tariffs. The USMCA would require that 75 percent of a car be made with parts sourced from North America in order for it to qualify as made in America and avoid the tariff. That's up from 62.5 percent under the old North American Free Trade Agreement, which USMCA would replace. Anything less than 75 percent and the car would lose its advantage under Most Favored Nation trade status and manufacturers would have to pay an additional 2.5 percent in taxes on each one. Read more here. 

Affordability Emerges as a Headwind
September U.S. sales fell for most major automakers from the post-Hurricane Harvey bump a year ago. But another factor is emerging as a headwind to sales: affordability for some new-vehicle shoppers. Automotive News reports that as vehicle transaction prices and interest rates keep rising and automakers reduce incentives, analysts and dealers are signaling that the resulting higher prices for consumers could be hitting a critical point, if they haven't already. Higher prices are hitting leases, too. Jonathan Banks, vice president of vehicle valuations and analytics at J.D. Power, said customers who leased at the ideal time — three years ago, when interest rates were lower and residual values were higher — are returning to the market at the worst time. "There's a lot of consumers that are kind of screwed," Banks said. "You come back to market, you're paying $299 or whatever for your Fusion or Camry, and now they want $399. That's a big deal." Read more here.

Trump to Move to Allow Year-Round E15 Gas Sales
The Trump administration is moving to allow the sale of gasoline containing 15 percent ethanol year-round, which would help farmers by increasing demand for corn, but faces opposition from environmental groups and the oil industry. According to The Detroit News, President Donald Trump is expected to make the announcement ahead of a rally Tuesday in Iowa, the biggest corn-producing state in the nation. Current rules prevent the sale of fuel containing 15 percent ethanol, known as E15, during the summer because it can contribute to smog on hot days. The U.S. Environmental Protection Agency cleared the use of E15 fuel for cars that are from model-year 2001 or newer in 2011. Most gasoline contains only 10 percent ethanol. Trump is expected to direct the agency to begin the process of amending federal rules to allow for the sale of E15 gas year-round. The administration hopes to have the new rules in place by the 2019 summer driving season. Read more here. 

Zero-Percent Financing Deals Fade from the New Car Lot
Car buyers on the hunt for a 0 percent financing deal are going to have to look harder. Auto lenders are pulling back on the no-interest financing offers that had become widespread in new-car ads and dealer showrooms for much of this decade, reports The Wall Street Journal. Cheap financing reinvigorated the U.S. auto industry’s sales following the recession, helping to keep monthly payments affordable and draw buyers from the used-car market, where lending rates are usually higher. But as interest rates rose, the cost of such deals has increased, pinching profits for car makers that finance vehicles through their lending arms and must pay the difference to keep the rate at zero for the customer. “For a long time, everything was 0 percent,” said Adam Lee, chairman of Lee Auto Malls, a dealership chain in Maine. At first, buyers could find 0 percent finance deals on 48-month car loans, and then auto lenders started extending those deals to 60-month loans and eventually 72-month loans, he said. “There are fewer and fewer of those deals now,” Mr. Lee added. Read more here.

SUVs Hit Sweet Spot, Make Older Drivers Feel Younger
It’s easier to get in and out of a vehicle with seats about two feet off the ground, said Keith Knudsen, Ford vehicle architecture manager. That’s the emerging sweet spot as a wave of SUVs replaces traditional sedans as America’s best-selling vehicles, reports The Detroit Free Press. And so the automaker shift from sedans to small SUV-type vehicles could pay off in a big way as drivers grow older and learn to appreciate seats that are easier to slip into than low-slung cars or traditional taller SUVs and pickups. A few examples include the Nissan Kicks, Chevrolet Trax, Ford Escape, Honda HR-V, and Kia Soul. The vehicles also provide better visibility, thanks to their height and big windows. Easy entrance and exit will become more and more important as the population ages and huge groups like Gen X move into their 50s and 60s. “Seat height is key,” Knudsen said. “People like to be able to slide in, not lift themselves up or down.” Read more here. 

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