MEMA’s Ann Wilson, centre, moderates a discussion on tariffs between Frank Oliveto of Util Group and Trico Group’s Jay Burkhart.
Just figure it out already.
That was essentially the message from Frank Oliveto, vice president of sales and marketing Americas at Util Group, which makes metal supports for drum brakes in passenger and commercial vehicles, in regards to tariffs U.S. President Donald Trump has put in place, particularly against China.
He was part of a panel discussion at the AASA 2019 Vision Conference in Dearborn, Mich., April 3. He sat alongside Trico Group’s president and CEO Jay Burkhart and Ann Wilson, senior vice president of legal affairs at the Motor & Equipment Manufacturers Association, who acted as moderator. Tariffs have been put in place on steel and aluminum imported from China, as well as Canada.
“I would say, ‘Don’t’ waffle,’” Oliveto said to the panel on what he would tell Trump when it comes to tariffs. “Either go in all the way or just drop it because waffling has costs for us.”
Businesses can’t properly plan their next steps or budget appropriately when they don’t know what their costs will be. While groups like the MEMA and AASA in the U.S. and AIA Canada here hope tariffs will be dropped outright, the president could also raise them by an unknown amount.
The uncertainty has been painful, Oliveto said. Companies are waking up to a different reality than what they planned for just a few years ago.
“A lot of people scramble, try to find short-term cuts … but there might be a silver lining there,” he said. “It’s definitely made us more flexible.”
“There’s something confusing to me about the cause and effect of the tariffs and what they’re actually resulting in.”
— Jay Burkhart, Trico Group
It’s forced his company to create ‘what if’ scenarios so that it’s prepared for whatever decision that gets foisted on them.
Burkhart was less positive.
“The uncertainty caused us to shut down one of our North American facilities until we figure out what’s going on,” he said, adding that production was moved to China and other facilities. But the company also has a greenfield plan in place once things are sorted out.
“So we decided to have this plan and have it ready to roll. Once we know what’s going on and there’s some clear direction from this administration … we’re just going to go ahead.”
Oliveto was fine with tariffs in place, saying he believes there would be initial pains at first, like higher costs for consumers, but prices would eventually come back down.
Burkhart disagreed. He expressed his frustration over the strategy of tariffs. He said he understands and backs the president’s goals of creating manufacturing jobs in the U.S., but the route Trump is taking is not the right one.
“I’m just not sure tariffs are accomplishing that,” Burkhart said, adding that, in his discussion with Chinese manufacturers, there is little concern on their end about tariffs. “There’s something confusing to me about the cause and effect of the tariffs and what they’re actually resulting in.”
Meanwhile, all the will-he-or-won’t-he talk is hurting many industries – the automotive aftermarket being front and centre.
“There’s a lot of collateral damage in the near term to a lot of manufacturing companies with all these changes,” Burkhart said. “I’m not sure (Trump) cares much about that, quite frankly. I think he can use that as a short-term fallout of a bigger strategic play.”
“The aftermarket is devastating, I can tell you that. It’s just killing us on the aftermarket.”
— Frank Oliveto, Util Group
Wilson asked how tariffs were affecting business.
“The aftermarket is devastating, I can tell you that,” Oliveto said, adding that production was moved to China as a result. “It’s just killing us on the aftermarket.”
Burkhart called the impact of tariffs on the aftermarket “insidious” as virtually every part the aftermarket makes has steel in it.
“The material costs for us have been an even bigger deal because for us it’s so pervasive. Everything you make or have people make for you … the whole marketplace went up,” he said.
How high is too high?
What happens if there’s another round of tariffs? What if there’s a tariff of 25 per cent on all imported parts?
“Where is there a breaking point for the aftermarket?” Wilson asked. “Is there a breaking point at which the consumer can no longer stomach it?”
Oliveto said 25 per cent “is a dealbreaker” for his company. They can pass on much of the costs right now, but they would have to absorb at least some of it at that point.
Burkhart, meanwhile, said another 20 per cent would be fine as pricing overall has come down 200 per cent in the last few years in some categories.
“I think there’s a lot of room to pass on to the consumer,” he said.
He compared buying auto parts to buying everyday groceries. Poeple notice when the price of milk goes up because they buy it regularly. Buying auto parts is irregular enough that they won’t balk at higher prices since they’re not doing so often.
“These things that are frequently bought and part of their lifestyle are going to affect their household budgets,” he said. “From a pure consumer frame of reference, I think we got a way to go that we can still push pricing.”