Although there is no “official” legislation to consider, the House Republican Ways and Means Committee is considering a new 20% tax on all goods or services imported into the United States. This Border Adjustment Tax (BAT) would apply to all imported automobiles and auto parts, even from countries with which we have existing trade agreements.
No car made in America has 100% domestic content, therefore, the 20% import tax would increase the price on ALL new vehicles. Researcher Baum & Associates LLC estimates most automakers would need to raise vehicle prices by thousands of dollars to recoup higher costs incurred by the proposed border-adjusted tax. Manufacturers are unlikely to raise prices by more than a few thousand dollars per car. But, each company would have to make its own decision on pricing and maximizing its profits, while also absorbing some of the higher tax burden.
Analysts at UBS Securities, LLC estimate the proposed border tax could raise average automobile prices in the U.S. by about 8%, or $2,500 per vehicle—enough to reduce annual sales by about two million vehicles.
The BAT Is Still A Work In Progress
Just last week, there were media reports that Republicans in the U.S. House of Representatives are considering possible changes to the design of the BAT proposal to accommodate industries (including automotive) worried about being harmed by the provision.
House Ways and Means Committee Chairman Kevin Brady said the Committee is exploring ideas to accommodate some of the concerns opponents of the BAT have, but did not provide any details on potential changes to the proposal.
Business lobbyists have suggested a number of changes, from a nominal tax to compensate import-dependent businesses to an import tax rate that would vary by country of origin to match the taxes U.S. products face abroad.
NADA Weighs In More Aggressively
In December 2016, NADA joined dozens of other business groups in sending a letter to the Chairman and Ranking Member of the House Ways and Means Committee warning how companies that rely on global supply chains (such as auto manufacturers) would face increased taxes and increased cost of goods, which would likely result in reductions in employment, reduced capital investments and higher prices for consumers.
Mark Scarpelli, Chairman of the National Automobile Dealers Association (NADA), released a statement on February 16, 2017, focusing on the potential impact to vehicle affordability for consumers.
The BAT is an issue that impacts ALL dealers, not just those that represent brands that are not built in the United States, because it could negatively impact vehicle affordability across the board.
Mr. Scarpelli echoed the concerns of Senator Orrin Hatch (R-Utah), Chairman of the Senate Finance Committee. The key questions that must be answered before any BAT proposal can be considered include:
•Are consumers going to, ultimately, pay the price of the tax? •Would this new tax structure be consistent with existing trade policies? •Which sectors of the economy would be net winners and losers?•Who would be the winners and losers within those sectors?
NJ CAR and NADA encourage dealers to engage with their members of Congress and ask them to consider the above questions, as well as the impact on the local, state and national economies.