This is shaping up to be the third major global financial crisis of my professional life, which feels like two too many. [Editor’s note: I think it’s telling that Matt feels there’s at least one global financial crisis to be expected in one’s professional life – JT] There’s an idea that this one is different because it’s self-inflicted and not caused by some exogenous event, like the pandemic. I don’t entirely buy this because the first one also felt like a man-made event. How do I know? My first job out of college was working in the mortgage-backed securities (MBS) market.
If this is your first time reading The Morning Dump, I feel like this little bit of prologue is helpful in judging anything I might say. It was 2005 and the job market was showing weakness, so I took the first position I was offered at a firm that did third-party due diligence for large commercial MBS deals. These deals were happening so fast that the banks outsourced the job of proving they were legit to companies like the one I worked for, and my company was doing this analysis so quickly that it hired a small internal team to help produce the research.
It quickly became obvious to me and my girlfriend, who also worked there, that while any individual deal analysis made sense, that, taken together, any slip in the market would likely be catastrophic given all the underlying assumptions. I remember when the so-called elite bankers came down from [redacted] to visit our offices. They were barely older than I was, and I don’t remember a single one of them saying anything smart. By day two, they were mostly just hungover and ranking strip clubs instead of tranches.
While it was the comically overleveraged residential MBS market that took down the economy, the collapse of the commercial MBS market didn’t help. My girlfriend and I both found other jobs before the collapse happened, which is why I do this. It didn’t even occur to me at the time that there was a way to make money off the collapse, as they did in The Big Short, which is all to say that you should take anything I say with an enormous grain of salt.
This is a car site, anyway, and so I’m going to talk about cars. It would be nice to think that, if the markets continue to implode and we drop into a recession, which is a real possibility according to a recent CNBC survey, car prices would come down. Unfortunately, that’s not a given this time.
I’m going to start this morning with what happened the last two times we experienced a global financial crisis and why car prices were only briefly cheaper, which is what I think is going to happen this time. Why? A new analysis shows that most of the cheap cars you might want aren’t built here, and building them here might make them more expensive.
That isn’t to say that all the cheap cars are built elsewhere. Nissan might be shifting Rogue production here as automakers try to get around tariffs, though that isn’t a guarantee that we’ll suddenly get a huge increase in production, at least based on some other signs.
And, finally, even if production does shift here, even the mastermind of the trade war admitted this weekend that it’s going to have to be robots building things if we can to keep prices down, which is also what I’m hearing murmurs of from automakers.
Why A Global Crisis Doesn’t Make Cars Cheaper
Above is a great graph from the St. Louis Federal Reserve Bank showing the Consumer Price Index for All Urban Consumers: New Vehicles in U.S. City Average. This covers 90% of the total population of the United States, and when the line goes up, people are paying more for cars, and when it goes down, they’re paying less. The little gray bits are the bad times. You can see the pandemic in 2020 and the Great Recession in 2008.
What’s interesting about this graphic is that the bad times don’t really line up with huge negative price shocks. You can see that cars got a little cheaper during the Great Recession and, briefly, stayed flat early in the pandemic. The expansion of the economy during the early Obama-era recovery, a shift in tastes away from sedans towards more expensive crossovers, and the reduction in used car inventory following Cash-For-Clunkers are all to blame for why we didn’t see prices for cars go down.
During the pandemic, the lack of available cars and a shift towards more expensive models (which I call trimflation) meant the sharpest increase in new car price increases going back at least to the 1950s. If you’re curious why cars got relatively cheaper starting in the 1990s, free trade (the thing the Trump admin is trying to get rid of) is one part of the equation.
Ok, I’ve written long enough that the markets have now opened in the United States and it’s officially a “bear market,” if only briefly (it seems like stocks are coming back a bit). The goal here by the Trump Administration is to build prosperity by erasing trade deficits. That is a thing that could happen. Or, as Robinhood’s trade director Stephanie Guild just said on Bloomberg, the tariffs are a “tax on every American.”
The 25% Tariff On Imported Vehicles Will Apply To 80% Of Vehicles Priced Under $30,000
Charts are fun, this feels like a good morning for charts.
This one is from Cox Automotive, which has a big analysis of the tariff policy out, and the reality is that these tariffs will impact cheaper cars in a big way:
According to our analysis, the average price of a new vehicle in the U.S. is north of $48,000. Importantly, however, more than 40% of new-vehicle sales by volume in 2024 were priced under $40,000. These “lower-priced” vehicles are particularly vulnerable to the new tariffs.
Our analysis suggests the 25% tariff on imported vehicles will apply to nearly 80% of vehicles priced under $30,000. Vehicles in this category include popular models such as the Honda Civic, Toyota Corolla, Chevy Trax and Trailblazer, Nissan Sentra and Honda HR-V.
What does all this mean for average vehicle prices?
In the coming months and years, as new tariffs settle into place, vehicle prices in the U.S. are expected to increase. A bill for the 25% duty at the border for imported vehicles and a 25% tariff on foreign content in vehicles assembled inside the U.S. will likely result in price inflation within the auto industry. Our expectation is that vehicles impacted by these tariffs could see prices increase 10-15%. In addition, given market dynamics, we also anticipate seeing at least a 5% increase in prices of vehicles not subjected to the full 25% tariff.
So, not down.
Some Jobs Will Come Back To The United States
Nissan has had a rough go of it and was considering cutting back jobs at the Tennessee plant that builds the Rogue. Now? According to Nikkei Asia, it’s possible that production does shift back to its plant.
Struggling with poor performance, Nissan had planned to halve shifts on some of U.S. production lines from April, reducing the number of Rogues and other models being made. Because of the tariffs, the company has decided to scrap those plans and instead increase production.
The Trump policy imposes a 25% tariff on cars imported from Japan and other countries, which raises the cost of exporting vehicles produced in Fukuoka.
Other Japanese automakers may follow suit. Automobiles are a key industry in Japan, with product shipments equivalent to about 10% of gross domestic product. The transfer of production overseas would lead to a drop in GDP, and measures to combat the hollowing out of the country’s industrial base will become a major challenge.
Does this mean that we could see the long-term shift in production to our shores? Maybe. Investment takes forever and requires confidence in the system. Are people confident in the system? Not so much. Welcome to the resistance… Bill Ackman?
It’s not impossible, though, as automakers can eventually do something. From that same Cox Automotive analysis linked above:
The auto industry is a high-cost, complex, long-horizon business that operates best in a stable, consistent environment. However, it is also a highly innovative, tech-intensive industry and one that has recently come under increased pressure by the success of Chinese manufacturers that have raced ahead in terms of speedy and efficient development cycles, as well as cost efficiency.
This situation comes at a time when traditional automakers are deeply engaged in rethinking decades of ingrained production methodologies. So, while the business of building, selling and servicing vehicles is highly dynamic, given sufficient time, investment, and the proper incentives, automakers and dealers should be able to navigate this challenge. The toughest part will be doing so without pricing more consumers out of the new-vehicle market, shrinking the market further.
How do we make cars cheaper?
This Probably Only Works With Increased Automation
Lutnick: “The army of millions and millions of human beings screwing in little screws to make iPhones — that kind of thing is going to come to America.”
— Aaron Rupar (@atrupar.com) April 6, 2025 at 10:52 AM
If there’s one face to put on all of this, it’s Commerce Secretary Howard Lutnick. While a lot of this is built on the President’s preferences, a lot of those preferences were informed by Secretary Lutnick. Conveniently, he was out on “Face The Nation” this Sunday explaining why we’re putting tariffs on penguins to bring jobs back here.
It’s anyone’s guess how any of this actually goes down, but if all the jobs come back here, it’s hard to imagine how the prices do anything but go upwards without some kind of labor shift. That labor shift? Probably robots.
You can read the whole transcript here, and I’m going to focus on one piece, about how this is going to relate to employment:
MARGARET BRENNAN: And you said that robots are going to fill those jobs. So those aren’t union worker jobs.
SEC. LUTNICK: No, it’s really automated jobs. It’s automated factories- automated factories. But the key is, who’s going to build the factories? Who’s going to operate the factories? Who’s going to make them work? Great American workers. You know, we are going to replace–
MARGARET BRENNAN: You said robots on other networks. You said that to FOX.
SEC. LUTNICK: –the armies of millions of people- well, remember, the army of millions and millions of human beings screwing in little- little screws to make iPhones, that kind of thing is going to come to America. It’s going to be automated and great Americans- the tradecraft of America, is going to fix them, is going to work on them. They’re going to be mechanics. There’s going to be HVAC specialists. There’s going to be electricians, the tradecraft of America. Our high school educated Americans- the core to our workforce, is going to have the greatest resurgence of jobs in the history of America to work on these high-tech factories, which are all coming to America. That’s what’s going to build our next generation of America.
This sounds a little bit like the old joke about how the bad news is robots are taking your jobs, but the good news is someone has to fix the robots, but the worst news is that someone just designed a robot that fixes robots.
My question is: Are there enough people to do these robot-repair jobs? There’s already an automotive technician shortage in the United States. What exactly is going to change that? The answer, I guess, is more robots.
What I’m Listening To While Writing TMD
For no reason, “Yoshimi Battles The Bing Robots Pt. 1” by The Flaming Lips is on my mind this morning.
The Big Question
If I handed you $50,000 today and you had to spend it on cars, what would you buy? How many cars?
Those penguins have been treating us very unfairly.