Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This week, virtually every major automaker posted sales numbers for
Speaker 2: the second quarter of this year, and it's clear Americans
Speaker 2: are still scrambling to buy cars before President Trump's tariffs
Speaker 2: are finalized.
Speaker 1: For General Motors, Honda, all Head good Quarters, actually Toyota
Speaker 1: did as well.
Speaker 2: David Welch is Bloomberg's Detroit bureau chief, and he's been
Speaker 2: tracking that sales data closely. There were winners, David says,
Speaker 2: and there were losers.
Speaker 1: Still And has had a tough quarter. Nissan had a
Speaker 1: tough quarter. Both of them have had pre existing problems,
Speaker 1: but they didn't seem to capitalize on consumers running the
Speaker 1: dealerships as much as the others. And of course Tesla
Speaker 1: down thirteen percent. Very tough quarter for that, David says.
Speaker 2: What we're seeing now with the auto industry is a
Speaker 2: new chapter in a story that started a few years ago.
Speaker 2: The reason for the price hike too few vehicles for
Speaker 2: sale during the pandemic and too many buyers.
Speaker 1: How anybody can afford paying as much for a vehicle
Speaker 1: or a truck as a.
Speaker 2: House, And that run up in prices has intensified because
Speaker 2: of the ongoing trade.
Speaker 1: War, and what we're going to be doing is a
Speaker 1: twenty five percent tariff on all cars that are not
Speaker 1: made in the United States. If they're made in the
Speaker 1: United States, is absolutely not terror.
Speaker 2: That was President Trump back in March. The introduction of
Speaker 2: new tariffs started what David calls a buying bonanza. Americans
Speaker 2: wanted to get their hands on a new ride before
Speaker 2: prices got even higher. We're hearing reporting that a lot
Speaker 2: of consumers are front running the implementation of these tariffs.
Speaker 2: But what this week's figures show is that surge in
Speaker 2: sales couldn't last forever.
Speaker 1: The storious consumers raced out to get ahead of the tariffs,
Speaker 1: and they did just that. So you had a bonanza
Speaker 1: for car companies in April and May, but you had
Speaker 1: a hangover from it some payback in June when the
Speaker 1: tariffs actually went into place and everyone who bought, not
Speaker 1: everyone put a lot of people who bought had already
Speaker 1: gotten their car and didn't need to go, and so
Speaker 1: you saw sales really geared down that last month.
Speaker 2: I'm David Gera and this is the big take from
Speaker 2: Bloomberg News today on the show. It's a nobody's market
Speaker 2: in cars. Why consumers, dealers, and manufacturers are all bracing
Speaker 2: for tougher times ahead. What that means for you if
Speaker 2: you're in the market for a new car this summer.
Speaker 2: Right after the largest car makers reported sales numbers for
Speaker 2: the second quarter this year, for April, May and June,
Speaker 2: I sat down with Bloomberg's David Welch. Before we dug
Speaker 2: into the details, I asked him for the big picture
Speaker 2: on those reports.
Speaker 1: It was a pretty solid quarter. Actually, you had a
Speaker 1: lot of people racing to buy cars in April and
Speaker 1: May to get ahead of tariffs that were going to
Speaker 1: be put in place. Those people did manage to avoid
Speaker 1: some extra costs from that, and then you had to
Speaker 1: pay back in June. Some companies were down, some companies
Speaker 1: were up just a little. So it tells you that
Speaker 1: people once they got the cars they needed and the
Speaker 1: tariffs came out, there us a big payback for all
Speaker 1: of that bonanza buying that went on early in the quarter.
Speaker 2: So it's not a stretch to say, looking at these
Speaker 2: sales data that this is a tariff's story.
Speaker 1: It is. You know, consumers aren't dumb. I think Trump
Speaker 1: put in a lot of tariffs in place on different
Speaker 1: goods in his first term, and I remember when you
Speaker 1: put tariffs on the EU. I remember seeing people running
Speaker 1: out to buy wine because it was sort of publicly
Speaker 1: out there that French and Italian wines were going to
Speaker 1: get hit with tariffs. And so it makes more sense
Speaker 1: with a big purchase than it does with a bottle
Speaker 1: of wine because depending on what the car companies are
Speaker 1: going to try to pass through. But you put five
Speaker 1: percent down an average price of a vehicle close to
Speaker 1: fifty thousand dollars, that's real money.
Speaker 2: David, I confess, as a journalist who covers this day
Speaker 2: in the day out, it is hard to keep track
Speaker 2: of what tariffs are in place, what have been put
Speaker 2: on pause, what may or may not be coming down
Speaker 2: the line. Can you just describe the trade environment that
Speaker 2: car manufacturers are having to deal with right now.
Speaker 1: Yeah, it's tough. So the big ones with this market,
Speaker 1: I should say the most common ones would be Mexico
Speaker 1: and Canada. So you've got some big tariffs on the
Speaker 1: non US content in those cars. So if the cars
Speaker 1: themselves were made with a certain amount of parts that
Speaker 1: are either made in the US or made at a
Speaker 1: certain wage, level. Then they qualify for USMCA. They come
Speaker 1: over here with a minimal tariff, but the parts in
Speaker 1: them that were not made in the US, there's still
Speaker 1: a terrify on those. To vehicles made in Korea, made
Speaker 1: in Japan, made in Canada or Mexico get hit with
Speaker 1: some pretty big tariffs. You haven't seen companies pass along
Speaker 1: a lot of that cost yet. They've been sneaking in
Speaker 1: some price increases or just cutting some of the discounting, rebating,
Speaker 1: zero percent financing deals that they had in the months
Speaker 1: leading up to implementation the terrors, But right now they're
Speaker 1: basically eating it out of their bottom line. So second
Speaker 1: quarter earnings will be very interesting for a lot of
Speaker 1: these companies, and I think the reason they're doing that
Speaker 1: is they're waiting to see what happens with trade negotiations.
Speaker 1: You know that there's the whole you know, Taco Trump
Speaker 1: always chickens out, So there's there's that. And also if
Speaker 1: you're General Motors, Hundai, Kia, or Toyota, you're not going
Speaker 1: to make any big change. Go wait and see what
Speaker 1: trade deal comes out.
Speaker 2: I'd love to shift from what manufacturers are doing to
Speaker 2: how consumers are doing in this moment. So I'm interested
Speaker 2: in the consumer psychology of car buying in this in
Speaker 2: this environment. What are they dealing with and you mentioned
Speaker 2: that buying bonanza a few minutes ago. How are they
Speaker 2: dealing yes, with these tariffs, but also with higher interest
Speaker 2: rates and kind of the broader economic environments challenges.
Speaker 1: Oh, that's a big problem. Affordability has been an issue
Speaker 1: in the auto industry for a while. And what happened
Speaker 1: during COVID semiconductor shortage is you have had shortage vehicles,
Speaker 1: so the car companies just got rid of all discounts.
Speaker 1: They were steadily raising the sticker price on vehicles and
Speaker 1: the dealers wouldn't In some cases were gouging, but in
Speaker 1: most cases the dealers didn't have to bargain because they
Speaker 1: didn't have a lot of inventories. They sold them at
Speaker 1: sticker price. And what the auto industry discovered was if
Speaker 1: they made fewer vehicles and sold them at higher prices
Speaker 1: and paid fewer people to do it, their profits were better.
Speaker 1: And they've tried pretty hard to stick to that ever since.
Speaker 1: So bottom line is, even if car companies wanted to
Speaker 1: push price increases in in order to make up for
Speaker 1: what they're losing on tariffs. It's really hard to do
Speaker 1: it because consumers are already beset by high interest rate,
Speaker 1: high prices, and they're kind of pushed to the limit.
Speaker 2: Yeah, this driver of a twenty fifteen Honda Odyssey was
Speaker 2: surprised to see the average price of a new car
Speaker 2: is forty eight forty eight thousand dollars. I mean, there
Speaker 2: have been substantial increases.
Speaker 1: It seems the used car market is not the great
Speaker 1: refuge that it was in years prior. So if you
Speaker 1: need to drive, is our spend more when you go
Speaker 1: buy it or just keep paying the repair shop and
Speaker 1: keep it going until maybe something breaks.
Speaker 2: What story are we we being told by these companies
Speaker 2: about the state that they're in right now.
Speaker 1: Ford had a good quarter, although it was against a
Speaker 1: pretty weak comparison a year ago because they had some
Speaker 1: production issues, but they had solid numbers. How ahead, a
Speaker 1: pretty good quarter. They've been really gaining market surely. General
Speaker 1: Motors has been gaining a fair amount of market Sharely
Speaker 1: that was the bugbear for the company for decades. They're
Speaker 1: selling a lot of evs. They've vowed that they're not
Speaker 1: going to put in price increases. Well, they're dealing with
Speaker 1: these tariffs and they're going to start building more vehicles
Speaker 1: in the US, So I think they see an opportunity
Speaker 1: to if they keep their prices where they are, continue
Speaker 1: to pick up market share while others are maybe a
Speaker 1: sneaky way taking away some of the discounts. And because
Speaker 1: they know some of their competitors are, particularly Toyota, are
Speaker 1: more exposed to tarifs in there, you do have your
Speaker 1: laggers here. Stillantis and Nissan continue to struggle. They're having problems.
Speaker 2: We haven't talked about Tesla yet, and that company reported
Speaker 2: sales numbers on Wednesday morning, global sales down thirteen percent
Speaker 2: from a year ago. As you look at those numbers,
Speaker 2: is the story they tell? A similar one, a unique one.
Speaker 2: How should we think about Tesla in the context of
Speaker 2: the broader car market.
Speaker 1: I think Tesla's story here is pretty unique. They have, frankly,
Speaker 1: a pretty stale product line. And that's not me writing
Speaker 1: cover views about Tesla saying I think the cars are stale.
Speaker 1: The model Y is pretty fresh, and it just hasn't
Speaker 1: really given them the big sales boost that they need
Speaker 1: to stave off this decline. So if you look at
Speaker 1: the four models that Tesla sells the most of the
Speaker 1: models Sedan Model X kind of a crossover. It should
Speaker 1: be Model three's they're smaller Sedan, Model Y. They're sort
Speaker 1: of stylistically different sizes of the same sausage. Right, So
Speaker 1: even though there's a new model Wine it's got some
Speaker 1: better technology and so forth, it doesn't tell consumers that
Speaker 1: there's something really new here. You also have the cyber
Speaker 1: truck that's clearly a niche vehicle, one because it's expensive,
Speaker 1: and two because it's it's a stylistic oddity, let's face it.
Speaker 1: So that has moved the needle for them, and they
Speaker 1: haven't gotten out the really inexpensive tesla that they've been
Speaker 1: talking about, the Model two. So they're kind of stuck
Speaker 1: in this situation where they've got a pretty stale lineup.
Speaker 2: After the break, What this slowdown in sales signals for
Speaker 2: manufacturers and what potential car buyers might expect to see
Speaker 2: as tariffs hit company's bottom lines. As cars have gotten
Speaker 2: more expensive, car makers have relied on incentive. A big
Speaker 2: one has been a tax credit for electric vehicles that
Speaker 2: was part of the Inflation Reduction Act. A seventy five
Speaker 2: hundred dollars tax credit, that's been in place since twenty
Speaker 2: twenty two, but the Senate version of the Tax and
Speaker 2: Spending Bill does away with it. Bloomberg's David Welch says
Speaker 2: that poses a real threat to an industry that's already vulnerable.
Speaker 1: In China, you've got BYD and the domestic car companies
Speaker 1: with very good electric vehicles really surging, and the European
Speaker 1: automakers themselves have good evs and do pretty well competition
Speaker 1: stuff there In North America, Ford had a particularly terrible
Speaker 1: quarter in EV sales, but General Motors is coming out strong.
Speaker 1: Hyundai and Kia are both very competitive and have good product.
Speaker 1: It's not the oligopoli or near monopoly that Tesla had
Speaker 1: five or six years ago in the US market. You know,
Speaker 1: there's something else obviously going on, which the politics of Elon,
Speaker 1: and I've seen some research that suggests that as high
Speaker 1: as eighty percent of ED buyers are let's call it
Speaker 1: somewhere left of center politically. They're not going to buy
Speaker 1: a vehicle from Tesla because of you. Not every one
Speaker 1: of them, not everybody really follows what the CEO does.
Speaker 1: But Elon was actually working with the administration, and I
Speaker 1: think he did turn away a lot of buyers, and
Speaker 1: that's really hurt them.
Speaker 2: What would that mean just quickly for these car makers?
Speaker 2: And you and I have talked before about the challenges
Speaker 2: facing car makers who make up electric vehicles. If that
Speaker 2: tax credit is phased out, as it is in the
Speaker 2: Senate version of this bill, what does that mean for
Speaker 2: a GM, for a forward, for companies that have more
Speaker 2: than dabbled in in electric vehicles lately.
Speaker 1: Look, it's really tough. You know, this is a seventy
Speaker 1: five hundred dollar tax incentive. Not every vehicle qualifies, but
Speaker 1: I think the ones that would be affected by this
Speaker 1: the most to the buyers who are most sensitive. So
Speaker 1: you take something like a Chevy Equinox. That's GM's fastest
Speaker 1: growing electric vehicle. You can get in one for thirty
Speaker 1: five thousand dollars and it gets over three hundred miles
Speaker 1: of range and it's a pretty nice little vehicle. And
Speaker 1: right now I think that's, you know, that's the vehicle
Speaker 1: for the non rich person who wants to go electric.
Speaker 1: That vehicle was twenty seven to five after the tax credit.
Speaker 1: Now it's back up to thirty five thousand dollars. General
Speaker 1: Motors is racing to reduce costs for its electric vehicles.
Speaker 1: Everybody is because the vehicles themselves are going to have
Speaker 1: to stand on their own two feet in the marketplace
Speaker 1: sell based on the price, and the company are going
Speaker 1: to have to either reduce losses or try to make
Speaker 1: money on them.
Speaker 2: There was an ominous line in our coverage I'll quote
Speaker 2: from it. With already high car prices expected to rise
Speaker 2: further as automakers manage billions of dollars in tariff costs,
Speaker 2: it may only get worse from here. What does the
Speaker 2: forecast look like for the second half of twenty twenty five.
Speaker 1: It's not good. The most of the forecasters are looking
Speaker 1: for even more payback than we saw in June, because
Speaker 1: there was some buying ahead in those months. But also
Speaker 1: I think what a lot of them are looking at
Speaker 1: is we could get more clarity in the second half
Speaker 1: on tariffs, and clearly Trump is to keep some tariffs
Speaker 1: in place. So let's say he gets a deal with
Speaker 1: Japan and Korea. Maybe it's not fifty percent, but maybe
Speaker 1: it's ten or fifteen percent, and then the companies will
Speaker 1: start to adjust to that. They can't move production immediately,
Speaker 1: so maybe they start raising prices. And parts makers also
Speaker 1: start raising prices and eventually they try to push this
Speaker 1: through to consumers. I thought General Motors moved to invest
Speaker 1: four billion dollars and move production to the US from
Speaker 1: Mexico was instructive in the sense that they've got people
Speaker 1: talking directly to Trump himself and the Trump administration. So
Speaker 1: I'm not saying they've got a perfect read on what
Speaker 1: Trump's going to do, because he's very unpredictable, but they
Speaker 1: got enough of a read on the permanence I think
Speaker 1: of these tariffs, and to announce this four billion dollar
Speaker 1: investment in moving a lot of production back from Mexico
Speaker 1: that's going to take in two or three years to do,
Speaker 1: that tells me that the Trump administration said, yeah, we're
Speaker 1: keeping this stuff in place, so deal with it, and
Speaker 1: that's how they're dealing with it.
Speaker 2: If you look at all of these manufacturers and how
Speaker 2: they operate, are there ones that are better positioned to
Speaker 2: weather these tariffs than others? And I guess vice versa.
Speaker 2: Are there those who stand to have more trouble than
Speaker 2: other manufacturers.
Speaker 1: I think Honda and Ford are very well positioned for this.
Speaker 1: GM They've got a problem. Almost half their sales came
Speaker 1: from someplace else. Toyto's got heavy tariff exposure here because
Speaker 1: they get about half of their sales coming from Japan,
Speaker 1: and they look the Europeans even you know, they had
Speaker 1: moved a lot of production to Mexico for proximity and
Speaker 1: because of USMCA, but that's all been kind of blown up.
Speaker 2: As these tariffs come into effect and stay to effect,
Speaker 2: are consumers going to be aware of how high they
Speaker 2: are and how they're affecting the prices? In other words,
Speaker 2: I think back on when there was that minor tempest
Speaker 2: involving Amazon where they were going to list how much
Speaker 2: prices were up because of tariffs. Are car company is
Speaker 2: going to do something similar? Do you think are we
Speaker 2: going to see on a bill of sale for instance
Speaker 2: X In addition, because of the way that these tariffs
Speaker 2: are affecting the bottom line at these companies, I.
Speaker 1: Don't think they'll have that kind of transparency into it.
Speaker 1: What consumers will just notice is they were shopping for
Speaker 1: some vehicle a couple months ago, and they look now
Speaker 1: and it's even more expensive where they tend to pick up.
Speaker 1: Most of this is basically news reports reported by US,
Speaker 1: reported by our competitors, and reported on TV that prices
Speaker 1: have gone up, and even if they don't know the
Speaker 1: exact amount, they just know that broadly speaking, cars have
Speaker 1: gotten expensive and that they've got to either put off
Speaker 1: that purchase or go out and buy something before it
Speaker 1: gets even worse. And then they start to really do
Speaker 1: their research.
Speaker 2: This is the Big Take from Bloomberg News. I'm David Gera.
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