As someone that doesn’t pay attention to the media outlets- at all, I thought I would come here and discuss this email I got from Goodwin.
I know the tarriffs are real, but the enacting dates, the percentage hikes, the “This is going to cost you a fortune later!” Claims. Any reality to this?
or is it one of those “yeah, prices will go up, but eventually settle back once American manufacturers get going.”
Fyi- keep it civil in here people. Don’t start a sentence with “I think...”
Well, it is true. Raw material prices on metals have gone up, and there is still some extra uncertainty because of the supply and demand. I've seen it personally.
Yes it is going to cost you a fortune. The way a company prices their products involves a multiplier of some sort on the cost of good sold. This multiplier looks at overhead, cost of goods sold andbuilt-in profit.
So if the multiplier is 3 and the tariffs increase the cost of goods sold by 1 dollar, the increase out the door is going to be 3 dollars. Of course since most companies also buy stuff from other vendors, the cost of more than one component is going to go up and the price actually goes up even more. People don't realize it yet, but they have just been docked a big chunk of their take-home pay.
Pete
Doesn't matter if its a scheme, a tariff, or profiteering. Your steel and aluminum products are all 25% more expensive now.
As someone who works in the manufacturing industry, yes, this is a real thing. The only unknown is exactly how much, but as Pete mentioned, that's going to vary based on the material, the processes and how many people have their hands on it before it arrives at your door.
This is also impacting the machinery that makes these things as well. Most of the machine tool guys I talk to already have orders locked in through 2020 due to this (think 14,000+ lbs of cast iron, steel & aluminum).
It's 100% true. We've been hit with price increases from our suppliers, and we're a little closer to the manufacturing end of things than Goodwin is. Raw materials have gone up, even when they're US-sourced. We had to increase the prices on a bunch of our sheetmetal products like our frame rails and butterfly braces specifically, but lots of parts are creeping up. We also gave our customers warning so they wouldn't be taken by surprise.
I haven't seen any sign of tarrif increases from overseas sources yet, that may be a little premature to set dates but Goodwin can be a bit excitable in his pronouncements sometimes.
That’s crazy. So, since the changing of hands indicates mark ups along the way, shouldn’t there be less mark ups if American metal companies sell here, since, ya know, less shipping from China, less exchanging of hands, etc.?
forgive me if this is a “duh” question.
What you're asking is if eliminating the middle man decreases costs. It does!
_ said:That’s crazy. So, since the changing of hands indicates mark ups along the way, shouldn’t there be less mark ups if American metal companies sell here, since, ya know, less shipping from China, less exchanging of hands, etc.?
forgive me if this is a “duh” question.
Less mark-up, yes, generally, but also higher cost of the raw product since we have things like breathable air and drinkable water...
The tariffs will generally get passed through to the end consumer. Any domestic manufacturers will take a significant amount of time to evaluate whether or not there are any opportunities created by the tariffs before they consider any investment. For the kinds of automotive stuff GRMers buy there isn't much extra domestic capacity so you're talking significant investment. That investment could well be wasted if an administration change in 2020 resulted in the tariffs being reduced or dropped altogether. There may be some small manufacturers who get additional business from this but the bigger players will adopt a wait and see attitude.
The other issue is who owns the designs. I may be manufacturing a seat with Daewoo motors in it and wish to source them domestically. If Daewoo owns the design and isn't ready to start an American plant then I need to source it elsewhere, but I'll have to have a new design created with everything that goes along with that, like all new tooling. Or , Daewoo could license their design to an American manufacturer for a fee. This all takes time and money and the final product won't be cheaper than it is today. You and I will pay the tariffs, licensing fees or the added domestic costs.
As for wheels from sellers like Goodwin, they're generally made offshore in cheaper labour countries. A domestic manufacturer who supplies OEM wheels probably couldn't be bothered tooling up for cottage industry sized sales.
I'd be curious to see what SEMA members think.
What's really interesting about the metal tariffs has been the American steel and aluminum manufacturers response.
While the tarrifs made imported steel more expensive than that of US suppliera, the US companies replied by raising their prices to match or just barely undercut foreign competitors. The result is the most profitable quarters most of them have seen in decades.
I'm pretty sure most companies with established supply chains are trying to ride this out rather than rejig the chains. At least that's what I'm hearing from my clients. They'll buy locally where it makes sense but they're not assuming this will be a long term worry.
Absolutely a real thing and you are going to start seeing this on a lot more products in the near future.
Miller, Lincoln and Everlast started doing this on their welders back before the first wave of tariffs hit. Hand tools and power tools are going to start seeing this too, we are currently trying to absorb a lot of this in our product costs. Unfortunately the consumer is going to get the short end of the stick on this.
In reply to The0retical :
But that's the whole point of any tariffs. The extra windfall profits "might" go to increased capital investment in more capacity, but only if the domestic manufacturer believes the tariffs will remain in the long term. In the short term the shareholders get a bigger dividend (maybe) and I get to see a price increase.
Hell, Blackbird Fabworx had to crank the prices up on their rollbars a couple months ago. Back when I bought my GT3 bar in a custom 2-stage powdercoat (I got half off on the powdercoating charge, so only $125) and then shipping from California to New York, I paid $1055 total. Now a GT3 in the standard color BEFORE shipping is $1049
The0retical said:What's really interesting about the metal tariffs has been the American steel and aluminum manufacturers response.
While the tarrifs made imported steel more expensive than that of US companies, US companies just raised their prices to match or just barely undercut foreign competitors. The result is the most profitable quarters most of them have seen in decades.
This makes sense when you think about it, US supplier has quantity x to bring to market in competition with a non-us supplier. non-us supplier has a cost increase making us supplier temporarily cheaper, anyone who can will now convert to the US Supplier up to the point that it is cheaper than the new price the non-US supplier is able to provide it. If the US supplier doesn't have the ability to provide more product its price will go up until it meets the price of the non US supplier or another supplier enters at a lower price. The problem with this is the unknown, do you invest to expand your operations knowing that some amount of your current margin is created by government action and tariff and that advantage might only last until the next election cycle? I'm not taking a side in the discussion just pointing out this is the expected outcome from a tariff in the short run with the longer run question being if the price advantage is sufficient to drive capital investment (I don't know, if I did I'd be a lot less grm and more big-money racing).
DeadSkunk said:In reply to The0retical :
But that's the whole point of any tariffs. The extra windfall profits "might" go to increased capital investment in more capacity, but only if the domestic manufacturer believes the tariffs will remain in the long term. In the short term the shareholders get a bigger dividend (maybe) and I get to see a price increase.
Oh it definitely is the point. The issue is that not only is it contrary to how globalization works, the strategy assumes that companies will do what is best long term rather than attempting to funnel money back into the pockets of its shareholders who are notoriously fickle about showing ever increasing gains.
I hate to be that guy (but I will anyway): steel and aluminum are very labor intensive to manufacture. That's why they're twilight industries here in the US, and have been for 20+ years, favoring their manufacture in countries with lower labor rates.
edit: I'm redacting my opinion of who the tariffs should be used to protect. Not the place for this.
So if the majority of the tarriffs are being done with metal, do you think we will see a spike in the use of other material such as plastics and carbon fiber?
seems like a carbon fiber strut tower bar, maybe lower suspension components might see an increase due to it being comparable to a metal counterpart.
In reply to _ :
A bunch of industry rags sitting on my desk are speculating that it may help composites if this drags out over a long enough period of time.
We're now just starting to see acceptance of composites in areas where metal has been used extensively (other than aerospace and racecars), if the increased prices keep up we may see greater acceptance provided the cost gap narrows. That relies on some of the newer tech getting out of labs, showing that they can scale up effectively, then getting into the market.
The advantage composites have at the moment is that there's a lot of money being poured into R&D, where as steel is basically where it has been for a while. The numbers I've seen is that composite manufacturers are looking for about a 40% price decrease in the next seven years.
There are shiny new tariffs on automotive components made in China, regardless of material. That's probably what Goodwin is warning about. Yeah, we'll be feeling that at FM, although not as much as the steel price increase. We do quite a bit of our manufacturing in the US.
https://www.wsj.com/articles/latest-u-s-tariffs-could-make-auto-parts-pricier-1537349403
The0retical said:In reply to _ :
A bunch of industry rags sitting on my desk are speculating that it may help composites if this drags out over a long enough period of time.
We're now just starting to see acceptance of composites in areas where metal has been used extensively (other than aerospace and racecars), if the increased prices keep up we may see greater acceptance provided the cost gap narrows. That relies on some of the newer tech getting out of labs, showing that they can scale up effectively, then getting into the market.
That's actually happening now with the composite beds in trucks and some new developments in FRP manufacturing, but it's been slower than expected.
How is oil rising again affecting that?
Maybe that's too deep of a question or not the right question, but with oil going back up it seems like a good many composites could be increasing as well.
Nevermind, you edited your last paragraph and that answered my thought.
im just gonna go ahead and IBTL before some of the regulars arrive.
In reply to RevRico :
That's the big disadvantage of using acrylonitrile derived from oil at the moment. There's a lot of experimenting going on right now with alternate methods of manufacturing acrylonitrile from grass and corn stalks. That would be better for the industry in the long run as it would decouple the price of carbon fiber from a commodity known to be a bit volatile.
In theory the new methods should scale well but until it makes it out of the lab (the last paper detailing a proof of concept I saw was only a few months ago) who knows.
Edit: You caught me in my half formed thought. Sorry about that.
The0retical said:What's really interesting about the metal tariffs has been the American steel and aluminum manufacturers response.
While the tarrifs made imported steel more expensive than that of US suppliera, the US companies replied by raising their prices to match or just barely undercut foreign competitors. The result is the most profitable quarters most of them have seen in decades.
And very little new hired personnel or (re) opened facilities. The tariffs are all about hooking up the shareholders. With the volatility of politics and never knowing if this admiinstration is going to cancel or double the tariffs next week, major US manufacturers certainly aren't going out and hiring a ton of expensive workers or invest in expensive new facilities in the short-term. They're just pocketing the profits and shareholders and execs are smiling. Just like in every other country that has protectionist trade policies.
We've been having to deal with a lot of electronics components either becoming expensive, or having the supply almost completely disappear as somebody else decides to get IBTT (in before the tariffs) on that part. We try to keep the key parts (cases and PCBs) made in the US, but the individual transistors and resistors are typically imported.
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