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Tuesday, 07 July 2020 22:07

The New Trade Agreement is in Force: How It Affects Auto Retail

Written by Jason Unrau, CBT Automotive Network

Index

That’s a strategy dealers can use in the sales process to boost consumer confidence in the cars they’re selling, under the new USMCA. Cars that are "Made in USA" can help the customer create an emotional connection before they’ve ever entered the cabin. This is a positive aspect that should not be skimmed past.

 

A negative component of the agreement is costs are guaranteed to increase on vehicles. Raw materials mined or manufactured at home are more expensive than foreign materials imported. With the labor component requiring nearly half of all workers to earn at least $16 per hour, it takes away incentives for carmakers to find cheap labor outside the borders, but that labor cost will be passed along to the consumer.

 

The net effect of higher costs is potentially a difference of a couple thousand dollars, perhaps less. Whether carmakers absorb some, dealers earn lower gross or customers take the full brunt is yet to be seen.

 

But when prices are higher, it can put car ownership just out of reach for some while other may delay their vehicle upgrade for a little while longer.

 

Another mitigating factor, albeit one that may not have major implications, is that more Americans will be earning a higher wage. Bumping pay to $16 per hour may make the difference between a household using public transportation and being able to afford a car.

 

Dealers in states where auto manufacturing is big business---Michigan, Indiana, Texas, Missouri, Ohio and South Carolina, for instance---could see an influx of buyers who work at assembly plants.

 

We’re just a few days into the USMCA. In the next months, we’ll begin to see how the agreement truly affects the automotive industry.

 

We thank CBT Automotive Network for reprint permission. 


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