It’s A Great Time To Buy A New Car, Except When It Isn’t, But Maybe It Is

Even in the most logical, predictable market there is no simple answer to the question “What car should I buy?” Beyond personal preference/finances, there are always complicated reasons why one car might be a deal while another one may not be. This is especially interesting when the two cars otherwise seem quite similar.

A great example is the Merkur XR4Ti. This was a RWD sports car with Ford’s Lima turbo four. In theory, it was going to be an affordable competitor to cars from Audi and BMW. That didn’t happen. In fact, by the time the Merkur made it to the United States, it was more expensive than the Mustang SVO with the same motor. Who would take a car from an unknown brand over a Mustang? The Merkur was almost as expensive as the more luxurious Thunderbird Turbo Coupe, which, as another Ford product, had a version of the Lima turbo.

What made the Merkur so expensive? The car was built in Germany, and in between planning the car and selling the car, the Deutsche Mark appreciated considerably relative to the dollar. When you pay to build something in one currency and sell it in another, you generally want to build it in the cheaper currency and sell it in the higher one. This, more than anything, probably doomed the Merkur experiment.

For all the talk of tariffs, this isn’t a bad time to buy a car, unless you want certain cars. I’m going to try to set the stage for what you probably should and shouldn’t buy. A European car? It very much depends on which European car. A Japanese car? Also, what happens if all the non-US companies make a trade bloc against the United States?

‘Don’t Be Scared’ Is The Best Car-Buying Advice

My advice last November was to “buy a car before the next big global trade war” because based on what President Trump said at the time, things seemed to be headed that way. That advice feels like it was correct in retrospect, and I took it myself by buying a car before everything got crazy.

But for all the talk of tariffs, it’s going to result in very different outcomes for different automakers at different times. Here’s the best advice I’ve heard, from an expert in this Detroit Free Press article:

“The price gains everyone is scared of haven’t materialized for consumers yet. So, don’t be scared,” Cox Automotive spokesman Mark Schirmer told the Detroit Free Press. “If inflation starts to return, that means the market will slow down and that means the only thing you can do as an automaker is lower your prices. I imagine (General Motors CEO) Mary Barra and (Ford CEO) Jim Farley are kind of nervous right now.”

According to the latest data, car buying experts at Cox Automotive and Edmunds.com say new vehicle inventory is healthy and, as many buyers remain on the sidelines due to economic jitters, it’s forcing dealers to discount cars at an aggressive pace to move the metal. The experts predict that automakers will soon have to help dealers by offering more national sales programs, and likely, low financing deals, to keep inventory from piling up on lots.

“Uncertainty is keeping folks on the sidelines, but inventory is building back up and (automakers) likely still feel they are in a war for market share, no one wanting to blink first. So if sales continue to plateau, I think we’ll see incentives come back,” Erin Keating, executive analyst at Cox Automotive, told the Free Press.

Don’t get scared, get prepared.

If you’re interested in a Ford, there are certain models that are a decent deal right now. Stellantis has been playing around with employee pricing, and automakers generally have been reticent to raise prices until everyone else does. I assume there will be a tipping point, but it hasn’t happened yet.

The best bet at the moment appears to be American-made cars for the obvious reason that they’re made in America and not directly subject to as many tariffs. American brands are also the safest bet because the less exposure an automaker has to tariffs, the less pressure there is to try to offset tariff prices by raising prices.

Why is that, exactly? It’s simple. If you’re an automaker and 50% of your cars are only impacted by the steel/aluminum tariffs (let’s say it’s a 10% increase in costs), and 50% of your cars are made overseas and subject to a higher, 30% tariff, you can make some of your products way more expensive while keeping the 50% of cars made in the United States cheap. Or, you can just spread the increases over most or all vehicles in order to lessen the impact on any one model.

So, who should we worry about?

Trump Threatens 30% Tariff On Europe And Mexico

I’m going to skip over the Mexican tariff threat from President Trump this weekend simply because it doesn’t seem like this new threat (which may not be real, anyway) will impact cars. Maybe the tariffs will, I don’t know, but for the moment, the auto sector seems to benefit from the existence of the USMCA trade zone formed by the United States-Mexico-Canada Agreement.

European stocks took a hit this morning as the EU doesn’t have the same sort of protection that the USMCA seems to provide automakers.

From Reuters:

On Saturday, President Trump threatened to impose a 30% tariff on imports from the European Union and Mexico, effective August 1, after weeks of negotiations with major U.S. trading partners failed to yield comprehensive trade agreements.

“The market is definitely taking the news negatively, but it’s not pricing it in…they are taking this with a pinch of salt and assuming that it’s just the start of a conversation and that over the next few weeks the news flow will gradually improve”, said Michael Field, chief equity market strategist EMEA at Morningstar.

In response, the EU said on Sunday it would extend its suspension of countermeasures to U.S. tariffs until early August and continue to press for a negotiated settlement.

Just like the United States likes to protect its auto workers, so does Germany. While it’s possible that German and Italian automakers could eventually shift more production to this side of the Atlantic, it ain’t gonna happen overnight. If you wanted a European car that’s not built in the USMCA trade zone, I’d maybe get moving on that sooner rather than later.

Japan’s Trade Woes Continue

For whatever reason, President Trump can’t seem to drop his consternation over his perceived trade imbalance with Japan. The President believes, falsely, that Japanese regulators throw bowling balls at American cars to disqualify them. As I mentioned last week, he’s also been concerned about the reluctance on the part of Japanese regulators to allow American agricultural products into the country.

Japanese automakers and suppliers have built numerous plants and facilities in the United States, of course. There’s really know other country I can think of that’s been a better example of post-war trade investment and cooperation than Japan. Which is why this is so confusing.

As Bloomberg points out, Japanese government officials also seem confused:

“They sell us millions and millions of cars a year. We sell them no cars because they won’t accept our cars. And they won’t accept much of our agriculture either,” Trump told reporters in Washington.

Trump announced last week that he will raise across-the-board tariffs on Japan to 25% on Aug. 1, after months of negotiations between Japan’s top negotiator Ryosei Akazawa and Trump’s aides yielded little progress. Bessent, one of the three negotiators leading the US efforts to reach global trade deals, is set to come to Japan to visit the World Expo in Osaka on July 19, but there has been no sign of a trade meeting on the sidelines so far.

Around 80% of Japan’s trade surplus with the US is in cars and car parts, and the country has already been hit by 25% sectoral tariffs on autos. While Trump has repeatedly complained about Japanese consumers not buying US cars, Prime Minister Shigeru Ishiba has said American cars are left-hand drive, large, and fuel inefficient, making them a tough sell in the country.

While Japan does have a history of protectionism with regard to cars, there are currently no tariffs on vehicle imports. Also, I just don’t see the Ram 2500 being a particularly popular vehicle in Japan. If huge tariffs continue to exist there’s only so much production that Japan can shift to the US in the short term and, it’s possible a new government in Japan could decide it doesn’t want to play ball.

What If The Rest Of The World Just Decides To Go It Without America?

The worst possible outcome, short of an actual war of course, is that the intransigence on the part of the United States results in the rest of the world deciding to isolate the US by setting up more bilateral trade without us. I think this is mostly unlikely given that much of the world relies on American products and, conversely, relies on American customers. The rest of the world can’t entirely drop us, but it can weaken the country’s role in the global economy.

The United States has been able to use the dollar as a global currency and has been able to maintain the most control of global trade post-WWII. Given that the “90 deals in 90 days” promise has passed with no signed deals and only a couple of broad outlines of deals, it’s a question worth asking, as this Bloomberg article does:

“We need to explore how far, how deep we can go in the Pacific area with other countries,” EU competition chief Teresa Ribera told Bloomberg TV on Monday from Beijing, where she is visiting for climate-focused talks with Chinese officials. She highlighted the EU’s continuing trade talks with India, which are expected to be completed by year’s end.

The most consequential case is the EU. The bloc is locked in talks with Washington while also forging ahead with existing bilateral talks and weighing new ways that align with the rules-based global trading system, which Trump has vowed to rewire with unilateral measures including tariffs that benefit the US.

“I support the Commission in its efforts to form global partnerships, alliances with other countries that are threatened by US tariffs,” Austrian trade minister Wolfgang Hattmannsdorfer told reporters Monday. “Together we can raise the pressure exerted on the US.”

For what it’s worth, Indonesia made a deal with the EU this weekend. You know who this feels good for? China.

What I’m Listening To While Writing TMD

This Song-of-the-Summer rec comes from David, who has been jamming on Aubrey Hobart’s “Sue Me.” If you’re not familiar, she’s a songwriter who has written a bunch for Gracie Abrams. I like it.

The Big Question

If you could import any car right now what would you import?

Top graphic images: stock.adobe.com; depositphotos.com