Easing of regulations affecting the industry should facilitate business in general, Ganther predicts.
Pexels/Aaron Kittredge
I write this column between Nov. 5, 2024, when Donald Trump was elected to his second term, and Jan. 20, 2025, when he was scheduled to be inaugurated as America’s 47th president. During that period of transition, it was appropriate to polish up my crystal ball and share my thoughts on how Trump 2.0 will impact the retail automotive industry. Spoiler alert: It should be mostly good.
CAFE and Emission Standards
In a widely expected case of déjà vu all over again, it is likely the Trump administration will both ease existing Corporate Average Fuel Economy and the Environmental Protection Agency’s greenhouse gas standards. This is an easy prediction because it is what Trump did in his first administration.
Making these standards less stringent and removing their year-to-year tightening will make it easier for vehicle manufacturers to build cars and light trucks that are more profitable for the industry and more popular with consumers. These steps will also take some of the wind out of electric-vehicle sales. EVs have been a big money-loser for most of the companies that manufacture them.
It is also important to note the role California plays in this arena. Under the Clean Air Act, states may not adopt or enforce emissions standards for new motor vehicles and engines. An exemption exists for California. The EPA has authority under Section 209 to grant a waiver to California to establish and enforce its own standards that are at least as strict as the federal standards.
On December 18, the Biden EPA granted California’s request for a waiver that would effectively ban the sale of most gas- and diesel-powered vehicles by 2035. And while it is likely Trump will revoke that waiver, it took his first administration 18 months to rescind it.
California currently has eight such standards that are more stringent than the federal standards. Expect this to end, and expect California to fight it.
EVs
Trump has vowed to eliminate what he calls the “EV mandate,” most visibly expressed in the EV tax credit. That credit, currently up to $7,500, is intended to promote the purchase of electric vehicles, but its impact is open to debate. While it obviously costs the American taxpayer, it is less clear who actually benefits. That is because, once announced, most EV manufacturers raised their prices to absorb that benefit. General Motors, for example, promptly raised the price of its Hummer EV by $6,250; Ford jacked the price of its electric F-150 by $7,000.
In the absence of government support, consumers will decide what kind of car to drive based on value rather than subsidies.
Energy
Trump’s energy policy will demonstrate a renewed commitment to domestic fossil fuels, regulatory rollbacks, and a de-emphasis of renewable energy. Expect tax breaks for oil and gas exploration and an end to subsidies supporting renewable sources.
Trump has promised to increase access to public lands and offshore waters to oil and gas development, and ending the Biden administration’s “pause” on new liquified natural gas export permits. Also expect a streamlining of the permit process for new oil and gas infrastructure projects.
All of this should have the effect of lowering the price at the pump, which is generally seen as a positive for the retail automotive industry.
Taxes
Trump campaigned on promises to exempt tip income, overtime pay, and Social Security benefits from taxation. In addition, he proposes a tax credit for family caregivers. He has also promised to create a deduction for auto loan interest akin to the existing mortgage interest deduction.
Lower taxes and an auto loan interest deduction means more money in consumers’ pockets and increased incentives to finance vehicle purchases, all good for the car biz.
With respect to business taxes, Trump wants to lower the current corporate income tax rate from 21% to 15%, limited to domestic production. This is consistent with the goals of his trade policy, below.
Tariffs and Trade Policy
Trump promises to increase tariffs for multiple reasons. His recently threatened tariffs against Mexico and Canada, for example, were aimed to limit illegal immigration and the traffic of fentanyl, not trade flows.
But targeted tariffs, against Chinese imports, in particular, will encourage the reshoring of American industry, one of Trump’s primary goals. And a renegotiation of the U.S.-Mexico-Canada trade deal can be expected to favor American auto manufacturers.
Conclusion
To state the obvious, Donald Trump is a polarizing personality. On Nov. 5, a majority of Americans voted to be on his side of the pole. But regardless of how one feels about his personality, his policies broadly favor the retail automobile industry. It will take time for his policies to be implemented, but their effects will be felt, and in a positive way.
James Ganther is president of Mosaic Compliance Services.
