With the Trump Administration about to take control of the White House, and the Republicans sweeping the Senate and House of Representatives, two main questions pop up relating to the transportation industry:
- What will tariffs do to the cost of owning and operating my truck?
- What will tariffs do to the freight market and the transportation industry in general?
Let’s dive into the first question in this post. This is a hugely complex issue, but we can at least give you an idea of several ways it could go as the new administration rolls out their trade policy. The reality is that it will be somewhat of a blended scenario – but at least we can give you the tools to analyze the risk.
According to the Federal Reserve Bank of Chicago, 25% to 50% of the parts content of Class 8 trucks on the road are foreign made. This includes parts that cross back and forth from Canada to the USA to Mexico for processing. The exact mix depends on the manufacturer, make, model, and year, and also the engine make. The current average Class 8 truck price is $195,000 including Federal Excise Tax (FET is 12%). Assuming that truck makers will at minimum keep their profit margins on their trucks possibly even raise them, we can run through a few scenarios:
Scenario 1: Pass the majority of the increases onto Customers
Assumptions: Truck manufacturers keep their profit margins steady, Tier 1 and 2 manufacturers don’t move their supply chains in major ways or fast enough (keep a lot in China or Vietnam/India), we assume blanket 20% tariffs as stated by the Trump Administration
Average Price of a Truck: Increase of 8 – 12% – Out the door with FET: $228,000 without FET: $204,000
Parts Pricing: Increases 20 – 35% depending on the gross profit percentage markup of the manufacturers and distributors & Dealers. This would be gradual like the price hikes seen over covid, with multiple increases per year for a year or two.
Scenario 2: Supply Chains shift to North America to Blunt Tariff Impact
Assumptions: Tier 1 and 2 manufacturers move their supply chains out of China to trade favorable nations such as Mexico utilizing the USMCA, what is able to be sourced domestically is, we assume a net effect of 7-12% price increases with the truck manufacturers eating some of it in their margins. We assume Trump doesn’t carry out 25% tariffs on Canada and Mexico, and if he does they will exempt transportation related industries.
Average Price of a Truck: Increase of 4 -6% – Out the door with FET: $208,000 without FET: $189,000
Parts Pricing: Increases of 6 to 8% depending on the gross profit percentage markup of the manufacturers and distributors/dealers.
What does this mean for you?
I believe that scenario 2 is more likely, with the gradual shift of manufacturing to Canada and Mexico and some of it to the US. However, there will likely be a noticeable increase in the price of trucks and the price of parts, especially aftermarket parts. At minimum, the manufacturers will use it as an excuse to raise prices.
On the truck equipment side of the equation, your older model trucks will age well. Meaning, rebuilding and keeping them well maintained will hold their value a lot better relative to buying new trucks. You may even get a year or two of appreciation.
If you need a truck or need to buy a lot of parts and want to beat the uncertainty of tariffs, I suggest you start thinking about it now!
By Tom Mikes – December 3, 2024