August 16, 2018 1:15 PM, EDT

Trump’s Tariffs Will Make Fixing Your Car More Expensive

Fixing Your Car Getty Images

Hopkins Manufacturing Corp. may shift its China supplier network to factories in Taiwan. Multi Parts has stopped hiring new employees. AutoZone Inc. and O’Reilly Automotive Inc. plan to raise prices.

Businesses in the replacement auto-parts industry — from component makers to local mechanic shops — are scrambling to cope with President Donald Trump’s tariffs on imported Chinese materials and goods. Steep levies already have boosted costs of some products made with steel and aluminum, and more duties could affect hundreds of other items these companies develop, make and sell — including tires and rearview mirrors, windshields and windshield wipers.

Springfield, Missouri-based O’Reilly hasn’t seen “a big impact” yet, but a couple of its suppliers have added a “fractional” part of the tariffs onto costs and a few more will do so early in the fourth quarter, CEO Greg Johnson said during the company’s second-quarter earnings call. So far “we have been able to pass that along” to customers, he added. These include do-it-yourself vehicle owners and service technicians shopping at O’Reilly’s more than 5,000 stores.

AutoZone is identifying products that soon could cause problems for the Memphis, Tenn., company, which has more than 5,500 stores and reported $10.9 billion in revenue last year. Prices of components made with steel, such as rotors and other brake parts, certainly will have to rise, spokesman Ray Pohlman said.

Limited Sources

“You can’t get the things we sell from very many places,” he said. “You can’t just buy it on any street corner.”

While the tariff threat is broad, it actually may affect less than 15% of retailers’ inventory, according to Wedbush Securities Inc. analyst Seth Basham: Auto-parts stores source 50-60% of their products from China, but only 20-25% of these are included in the latest round of tariffs, he said. These duties cover a wide variety of imports with a total value of more than $200 billion and won’t take effect until after a comment period ends Sept. 6.

“We think they should be able to pass through the extra costs without too big of a hit to their earnings,” Basham said.

Some parts suppliers are less sanguine. Brian Cohn, president of Jupiter, Fla.-based Multi Parts, said the company’s typical flow of orders has slowed, and higher prices on materials have led him to stop hiring new workers. Multi Parts’ facilities in Shanghai, Hong Kong and Belarus manufacture components including brake and wheel cylinders, wheel hubs and valve-timing solenoids. Customers include parts distributors and other manufacturers of auto-repair products.

Higher Prices

Hopkins Manufacturing CEO Brad Kraft said his company imports many goods from China, and new tariffs in place have driven up prices on about 350 items made with steel and aluminum. If the proposed tariffs on the additional $200 billion are enacted, prices will rise on at least 3,000 more of its products, which include tires, oil and fuel filters and components for towing systems.

Hopkins, based in Emporia, Kan., has two manufacturing facilities — in Juarez, Mexico, and Los Angeles — and an office in Ningbo, China, that coordinates logistics with about 45 supplier factories in the country. Kraft says he’s considering using suppliers in Taiwan instead. Sourcing products from Taiwan is more expensive, but it now looks like a cheaper alternative, he said.

Re-sourcing products is time-consuming and expensive, however. Companies will need to feel certain that tariffs will stick before they make such changes, according to Aaron Lowe, a spokesman for industry trade group Auto Care Association.

Delayed Maintenance

One risk of prolonged price hikes is that car owners may put off maintenance, reducing sales of replacement parts. This also could increase the number of unsafe vehicles on the road, Cohn noted.

“The typical auto aftermarket consumer already has a bit of a pinch on their pocketbook,” he said. “So people will likely just choose to go without repairs for a while.”

Despite the potential for lost business, Chris Lynch, owner of Wetmore Tire and Auto in Ferndale, Mich,, says he plans to pass along to customers any price increases on the low-end tires and brakes he imports from China.

“They are going to have to pay that extra cost in the end,” he said, “because we’re not going to eat it, that’s for sure.”