Thread by @unseen1_unseen

I love how they bury the headlines in these articles. Those steel tariffs cost Ford $1 billion to it's bottom line. The costs were not "payed by the consumer" but by Ford's lower profit. And industry "declining' to pass most of higher costs to consumers"

cnbc.com/2019/06/05/aut…

"declining". The article pretends that it's only through the good will of the auto industry that those costs haven't been passed along. Yeah, sure, that's it. Ford takes a $1 billion dollar hit to their bottom line because they are nice people. 🙄🙄🙄.

They haven't been passed along because the auto industry can't pass them along, yet. So instead it's impacting profit margins. The article then threatens that this "good will" can only last so long & the Mexico tariffs "make them" pass them to the consumers.

The article then explains how the tariffs function by using freight on board price when it comes over the assembly line. So if the car sells for $40,000 and it costs $30,000 to make a 5% tariff would raise the cost to $31,500. 25% tariff would be $37,500.

It then explains that much of the car parts are made in China and Mexico and just assembling the car in the USA would not protect the auto industry from these tarrifs because the price of the parts go up. It's almost as if Trump wants the auto parts to made here too....the horror

It then buried another headline...NAFTA changed the entire supply chain of auto parts not just autos and these tariffs could change it back. It's almost like tarrifs are a magic wand or something....🤔🤔

And why can't they pass along the costs? The article buries that headline too....sales are down on autos. You don't raise prices during a period of lower sales. You cut prices to increase sales. The article admits if the auto companies pass through costs consumers just won't buy.

So to wrap this up. The auto companies are unable to pass along costs of tariffs, so far. They are having reduced profit. Sales are down and prices can't be raised. It's becoming unprofitable to make cars and parts in China and Mexico due to tariffs. What to do, what to do?

Add to that the uncertainty of the business model with the possibility of more auto tariffs in 6 months. Seems like the answer that quickly comes to mind is make as many of the the auto parts& autos as they can in the USA. There are no tariffs for cars made in America, after all.

Of course like the tariffs this will lower auto companies profit margins but if it is a choice between the same profit in the USA as in cartel controlled Mexico or communist China which market would a smart person pick?

Reminder, the companies didn't leave the US so they could save consumers money. They left to make bigger profits. Take that profit motive away and see what happens.