Tariff fears are driving a boost in auto sales in Detroit

With a licence plate and set of keys in hand, Jerry Chen gets into the new Toyota Highlander his family decided to purchase before U.S. President Donald Trump's auto tariffs kicked into gear.

Chen and his wife, who have two children, bought the vehicle from a Toyota dealership in Bloomsfield Township, a northern suburb of Detroit.

"I'm super excited," Chen said moments before getting into the driver's seat.

CBC News travelled to Michigan's Motor City because of its large auto industry presence, to find out how consumers and dealerships are responding to the tariffs. Detroit is also across from Windsor, Ont., Canada's key auto industry player that's home to giant plants like Ford and Stellantis.

Chen admitted the purchase of the family's Highlander was made sooner than originally planned.

"We were a little concerned about waiting, you know, six months or a year, not knowing what would happen," he said, referring to what vehicles might cost down the road.

"I actually have been looking for about a month, so I think the car itself is great and I'm due for a new car, and with all the tariffs going on, I figure it's probably a good time to get a new car before the prices go up."

He's not alone. Sales for U.S. vehicles rose over 10 per cent in March compared to the same month last year, according to Cox Automotive and a TD Economics report.

The figures were released after Trump announced in late March that, effective April 2, his administration would be slapping a 25 per cent tariff on imported vehicles that don't fall under the Canada-United States-Mexico Agreement (CUSMA) and that 25 per cent tariffs would be imposed on certain auto parts beginning May 3.

Bob Page, owner of the Toyota dealership where the Chen family bought their car, said his sales are up about 20 per cent this year compared to the same period in previous years.

"Generally speaking, we've had a pretty good rush. And I'm hearing it throughout the nation for added car purchases. Moving people, people that are thinking of doing it the next two or three months, we're trying to do it now."

Page also owns a Honda dealership about 16 kilometres from the Toyota business.

At Bloomsfield Honda, one of Page's top salespeople, Sean Fathi, said business has been good.

"As of mid-March when the tariffs were announced … we had a huge uptick in new car sales and a lot of buyers," said Fathi.

"So a buyer that was in the market a month from now is coming now; a buyer who was in the market this summer is coming now. People are worried that they [further tariffs] will happen."

Sales are so good, Fathi said jokingly to CBC that,"I have a vacation … coming up right now, and I kind of don't want to go because it's been so busy."

But Fathi knows the sales boom could screech to a halt.

"I hope it doesn't happen because, you know, why should people pay more just because of tariffs, just because somebody wants to put a tariff on a vehicle. It's not fair."

According to Anderson Economic Group, tariffs are expected to add $2,500 to $5,000 US to the price of American vehicles and up to $20,000 to some imported models, costing Americans an estimated $30 billion in the first full year.

The general sentiment from those CBC spoke with regarding Trump's grand plan to move as much production back to the U.S. as possible was that people aren't opposed, but at the same time, they recognize change doesn't happen overnight — and in the meantime, it could hurt the economy.

"I feel like he's doing it for a reason, and hopefully it all works out because, you know, it hasn't really happened. He says he's gonna do it and then he doesn't do it," said Fathi.

"It's annoying, but there's a 90-day pause and hopefully that's going to help," he added. "I just don't know what's going on, to tell you the truth. I mean, I voted for Trump, but I don't know what is going on."

Another dealership owner, George Glassman, also isn't complaining about the sales uptick now, but worries about the future.

"The concern, the anxiety over what the tariffs are going to mean or could mean, it's going to be in higher prices. So if somebody can buy a car or lease a car today, they have the certainty of knowing what the cost is going to be, as opposed to what's down the road."

Glassman, a second-generation owner of his family's auto park in suburban Detroit, sells both new and used vehicles. It carries a number of foreign brands, including Hyundai, Kia, Subaru, Genesis and Mitsubishi.

"At the moment, customers are coming in, in pretty good numbers, to buy the pre-tariff vehicles, which are all the cars on the ground," said Glassman.

During the second week of April, Glassman estimated he had a 60-day supply of tariff-free vehicles on his lot.

According to the Kelley Blue Book, the average auto brand had a 91-day supply of product and by the end, it was at 70. The auto data provider also says the nationwide sales pace in March was more than 17 per cent faster than in February.

Although the tariffs are only on new cars, supply and demand dictate the supply of used cars will decrease as consumers race to find an affordable vehicle, and therefore create an increase on these vehicles as well.

WATCH | In Detroit, how the auto industry is responding to an incoming tide of higher prices:

There’s been a surge in new car sales as drivers rush to get ahead of the impact of tariffs. But dealerships are bracing for what comes next. The CBC's David Common goes to Detroit to find out how the industry is responding to the incoming tide of higher prices.

Despite the uncertainty, Glassman is optimistic that tariff-related negotiations will produce an outcome he can live with.

"I don't think anyone could have necessarily imagined the scope of what is currently taking place. And having said that, I'm still optimistic that there's going to be negotiations that go on. Do I think that there will be tariffs and there will be some increases in terms of the cost of vehicles? Absolutely."

Like others, Glassman sees Trump's big picture, but realizes how long it could take to come to fruition.

"I don't think anybody can take issue with the idea, the goal of having more plants in the United States producing more vehicles, but this is not something that we're going to see in any short-term period of time. It's going to take years and years."

JATO Dynamics analyst Felipe Munoz has crunched the numbers and argues Detroit's Big Three automakers — General Motors, Ford and Stellantis — are more exposed to tariffs compared to many foreign brands.

"I would say that it's not going to be easy for them, especially because some of the products they are bringing from these two countries, Canada and Mexico, are mainly volume products, and it's hard to relocate the production of these cars just in months. It's not going to happen. So in the meantime, they're going to suffer in my opinion," Munoz told CBC News.

He said American carmakers have been able to produce cheaper cars in Canada and Mexico and sell them with competitive prices in the U.S., and "that competitive position they've had for years is now being threatened."

Munoz also said that while the new trade policy is intended to boost domestic carmakers, they will be impacted because of the smaller global presence they have, relying heavily on domestic sales compared to some of the Japanese and European competitors.

At the moment, it's not clear whether or not the auto industry will catch a break with tariffs, but Trump did allude to one.

On April 14, he told reporters in the Oval Office, "I don't change my mind, but I'm flexible," creating further uncertainty in an industry already rocked by the president's whims.

Until then, it appears the speculation will continue to drive sales up.