Business Owners Feeling Tariff Pressure: Challenges and Strategies

The commercial vehicle market in the United States is facing a new wave of economic pressures in the form of tariffs on imported goods, including imported work trucks and vans, as well as imported parts and assemblies. Similar to the challenges witnessed during the COVID-19 pandemic, these tariffs have the potential to reshape the current landscape.

As the industry braces for the ripple effects of seemingly ever-evolving trade restrictions, adapting quickly will be essential. Business owners and fleet managers must navigate these pressures with proactive strategies to ensure stability and long-term resilience.

Deja Vu? Tariffs vs. COVID-19: A Comparative Look at Supply Chain Disruptions

The COVID-19 pandemic exposed the fragility of global supply chains, causing widespread disruptions. Similarly, tariffs on imported commercial vehicles and components like steel and aluminum are expected to disrupt the automotive supply chain. While COVID-19 was a global health crisis, tariffs are, of course, different, but they can still lead to market disruptions.

As with the pandemic, tariffs could lead to increased costs, production delays, and inventory shortages.

Price Hikes and Their Ripple Effects

Tariffs on commercial vehicle manufacturing inputs and imported vehicles are almost certain to increase prices. FTR Transportation Intelligence estimates a 4-6% increase for Class 8 trucks and 4-5% for Classes 4-7 due to steel and aluminum tariffs alone. S&P Global Mobility anticipates a potential 9% rise in new truck prices. These costs will likely be passed, at least in part, to business owners/fleet managers purchasing these vehicles. The table below illustrates these estimated price increases:

These increases underscore the potential financial implications of tariffs for businesses that rely on commercial vehicles.

Complications With Reshoring Manufacturing

Tariffs may incentivize commercial vehicle parts suppliers and original equipment manufacturers (OEMs) to shift manufacturing to the U.S. to avoid import duties, as seen with Honda restricting production of the Civic Hybrid to Indiana. While this could create U.S. jobs and more stable supply chains, it requires significant investment and time, potentially leading to temporary disruptions. Concerns about labor shortages and higher domestic labor costs are also an issue. While reshoring aims to reduce tariff costs, overall production costs could rise.

Asymmetric Impact: Small Businesses Under Pressure

Tariff-induced inventory shortages and price hikes are expected to disproportionately affect small businesses compared to larger fleets.

“During these types of supply-chain challenges, it’s not uncommon for smaller businesses to be challenged with finding necessary vehicles,” explains Candy McCullom, Business Development Manager at Comvoy. “Small businesses often have less negotiating power and may struggle more with increased costs and limited inventory. This can significantly impact their operations and livelihoods.”

Strategies for Business Owners and Fleet Managers

Business owners and fleet managers can address rising vehicle prices and fluctuating inventory by:

• Reassessing replacement cycles: Carefully evaluate the cost of maintaining older vehicles against the higher costs of new ones, considering potential downtime and maintenance expenses. It can be more cost-effective to purchase a vehicle if the expense of servicing work trucks and vans no longer provides a good ROI.   
• Implementing robust maintenance programs: Prioritize regular and preventative maintenance for vehicles with adequate “life” left, which can then extend the “life” of your current fleet, helping to avoid or delay the need for expensive new vehicle purchases in a high-tariff environment.  
• Exploring alternative sourcing options, including used vehicles: Investigate purchasing used commercial vehicles or refurbished parts as a potentially more cost-effective alternative to buying new vehicles.  
• Strategic inventory management: Carefully forecast your vehicle needs and consider purchasing or placing orders for new vehicles or essential parts earlier than usual to potentially avoid future price increases or shortages caused by tariffs.  
• Effective budgeting and financial planning: Anticipate higher costs for vehicle acquisition, maintenance, and the ultimate impact on other costs such as insurance due to tariffs and adjust your financial planning accordingly to ensure business sustainability.

In reality, these are best practices in any environment, but it becomes increasingly critical to be more mindful of them during challenging times. Staying informed about tariff changes is crucial, and investing in operational efficiency can help mitigate the impact of increased costs.

Conclusion

Tariffs introduce undeniable pressures, but commercial fleet managers and business owners can take proactive steps to mitigate the impact on their operations. Strategic decision-making and adaptability will be key drivers in easing financial strain, maintaining business continuity, and ensuring success despite evolving market pressures.

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