Did new vehicles just get more expensive as the auto industry now must grapple with a partial closure of the busiest automotive port in the nation?
Part of the Port of Baltimore has been closed since Tuesday following the collapse of the Francis Scott Key Bridge after a container ship struck it earlier that morning. As the Detroit Free Press reported Tuesday, Detroit automakers, and others, have been working to reroute impacted goods through other ports, which could delay new car and auto parts shipments, adding costs to the carmakers.
So it begs the question: Will those costs trickle down to car buyers? The good news: Most experts said it is unlikely consumers will see a spike in the transaction prices for new vehicles in the near term. But longer term, it could get complicated.
"Several factors, including the length of the port’s closure and the capacity of alternate ports, are two key elements," Karl Brauer, executive analyst at iSeeCars.com in Los Angeles, told the Detroit Free Press. "Additional variables include how much a given brand relies on Baltimore for both vehicle and supply chain shipments. For instance, it’s likely a brand like Subaru, which is prominent in Northeast markets, faces a bigger impact than Hyundai, which has manufacturing hubs in the Southeast and sells a larger percentage of vehicles in Western states like California."
Rising prices will depend on this
On Thursday, auto executives and "other shippers and supply chain" leaders were due to meet with Secretary of Transportation Pete Buttigieg to discuss ways to mitigate disruptions to the supply chain, John Bozzella, CEO of Alliance for Automotive Innovation, told NPR in an interview that morning.
The Alliance for Automotive Innovation is a trade and advocacy group that represents most carmakers. Bozzella said: "This is the No. 1 auto port in the entire United States so there will absolutely be some disruption when you have both import and export vehicles. But we don't know the extent of disruption because companies are working on ways to reroute things."
About 750,000 to 850,000 new vehicles go in and out of the port each year on haulers carrying about 1,000 cars each, auto industry experts said. Some parts, used in vehicle assembly, also pass through the port. This month, Mazda had the most imports through Baltimore by dollar value, followed by Mercedes-Benz, Subaru, Mitsubishi and Volkswagen, according to data compiled by Bloomberg.
The "big question" is what impact this disruption will have on new vehicle pricing, he said.
"A lot of it will depend on the extent companies can find these workarounds and the extent this part of the Port of Baltimore will be disrupted. How long will that path into the port be closed? To what extent will the repair or rebuilding the bridge take?" Bozzella said. "We just don't know the extent yet. What we learned from the pandemic is that significant disruptions to the automotive supply chain can have an impact on the market."
Also learned from the pandemic were ways to mitigate supply chain disruptions, Bozzella said.
Is there a backup plan?
Ivan Drury, director of insights at Edmunds.com, agreed that vehicle prices could rise from this disaster, as they did in the COVID-19 pandemic, but not nearly as severely this time.
"I don't expect anything even remotely similar to what we saw from the pandemic," Drury told the Detroit Free Press.
Average transaction prices rose by $8,000 from $39,000 in 2019 to over $47,000 in 2021, according to Guidehouse Insights in Detroit data.
"But the pandemic showed us how fragile the supply chain is and how lean most companies are running when it comes to parts," Drury told the Detroit Free Press. "The question is how much have we learned from that and has the industry truly had enough time to shift toward something more adaptable or are we still patching and plugging versus truly having a long-term fix or set of backup plans for supply chain disruptions?"
An example of the supply chain's fragility was the semiconductor chip shortage that came out of the pandemic and lasted nearly two years. It created a massive shortfall in inventory across all automakers, dragging down sales and automakers' profits until the industry recovered last year.
Hard to hike prices too high
Tyson Jominy, vice president of data and analytics at J.D. Power, expects it will be many months before that waterway reopens.
About 1:30 a.m. Tuesday, a 948-foot container ship crashed into the bridge, causing a large part of it to collapse into the Patapsco River. Authorities are still conducting human recovery efforts before they can start the arduous task of removing all the debris from the river. The bodies of two of the six missing construction workers were found Wednesday afternoon.
Given the uncertainty around the port's closure, it is too soon to declare an impact on pricing, Jominy said. But he is skeptical that an automaker could hike prices much in today’s environment for two reasons.
"It is one port, so there are competitive ports where products are sent instead, which would take time and expense, but it’s not as if the entire Eastern Seaboard is down," Jominy told the Detroit Free Press. "That’s the nature of logistics. The people who do this, crisis is their business.”
Secondly, there are 1.7 million new vehicles on dealership lots across all brands right now giving automakers sufficient inventory, in the right segments, for at least two months of sales even if all production and imports halted, he said.
Also, the competition is fierce, Jominy said. The European automakers use the port the most to import vehicles, so if for example, Volkswagen doesn't get in enough Tiguan SUVs into the states, consumers have the option to buy Passat sedans, which are made in Tennessee. Or a consumer could go to a competitor SUV such as the GMC Terrain or Ford Escape, both also built in North America.
"So maybe consumers change their behavior a bit, but it is a competitive market and it’s a volume-driven industry and prices have fallen for the past nine months, so I don’t expect anyone to say, 'Hey I’m taking my prices up,' " Jominy said. "That would be a pretty difficult challenge ... to take pricing up in this environment.”
Problems at Baltimore 'modest' by comparison
Plus, rerouting goods usually does not lead to relevant price increases in overall logistic costs, said Patrick Lepperhoff, principal at Inverto, a global management consultancy that specializes in supply chain management. Lepperhoff said there will be some impact on lead times and operations, but the cost element to most automakers will be insignificant.
“Logistic costs for car prices are a minor portion of the overall spend, they only account for a low single-digit percentage of the overall costs," Lepperhoff said. "Therefore, even huge logistics disruptions, obviously, don’t have a relevant impact for (manufacturers) and their suppliers."
He said that while final car sales prices are not heavily affected by the logistics costs, other expenses such as production costs, raw materials and components are far more relevant to new car sticker prices.
Also, while the Port of Baltimore is a relatively large port, it is "by no means a dominant port," said Sam Abuelsamid, principal analyst of transportation and mobility at Guidehouse Insights in Detroit.
He said about 3.1% of United States imports come through Baltimore whereas the port of Long Beach in California handles 20% of all imports and 40% of those from China, with a similar amount going through Los Angeles.
"Compared to the massive backups that occurred in Long Beach and Los Angeles in 2022, the issues at Baltimore will probably be quite modest," Abuelsamid said.
In addition, with interest rates and vehicle inventories much higher than they were two years ago, "there is less wiggle room to raise prices because affordability is already a challenge for consumers," he said.
Abuelsamid said the European brands will probably see the biggest impact from the disruption at the Port of Baltimore, but it will likely be short term as they move vehicle and parts unloading to other ports, particularly in the Southeast.
Higher sticker prices don't mean much
Earlier this year, the Detroit Free Press reported it would be the best year to buy a car since pre-COVID-19. But analysts warned at that time that most automakers would bump up the manufacturer's suggested retail price (MSRP) due to inflation, the higher costs of producing cars and the UAW contract — which will bleed over to the nonunion automakers, which had to raise wages or risk their workforce going union as well.
J.D. Power still expects automakers to gradually raise sticker prices by a total of about $1,000 over the next nine months, but it won't matter to car buyers, who will walk out the door with deep dealer discounts, Jominy said. That's because average transaction prices are expected to drop by $1,100 throughout this year due to higher inventories and bigger incentives to move the metal off dealers' lots.
"We’re producing about 600,000 excess units this year so inventory will rise and incentives will rise and those two elements are driving the price decrease," Jominy said, adding that the average transaction price for a new vehicle as of March 28 is $44,200, down 3.6% or $1,648 from the year-ago period.
White House monitors auto impact
Meanwhile, the White House said Thursday that the National Economic Council convened a meeting of the Biden-Harris administration Supply Chain Disruptions Task Force on Wednesday to discuss potential impacts on regional and national supply chains from the collapse of the bridge and partial closure of the Port of Baltimore.
The task force is made up of supply chain experts in the administration who can assess any bottlenecks in the supply chain and use federal resources to mitigate it.
"The White House and Federal agencies have engaged extensively with industry, ocean carriers, ports and labor unions to minimize disruptions as shipments are rerouted while the Port of Baltimore is closed to ship traffic," the White House said in a statement Thursday. "Members of the Task Force shared real-time analysis of sectors with significant activity through the Port of Baltimore, including automobiles, farm machinery, and agricultural products."
A spokesman for the UAW did not respond to a request for comment on whether the union was involved in meetings with the task force. But the White House said the task force will continue to coordinate federal efforts to assist impacted industries and monitor shipping activity at alternative ports.
Contact Jamie L. LaReau: jlareau@freepress.com. Follow her on Twitter @jlareauan. Read more on General Motors and sign up for our autos newsletter. Become a subscriber.
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