The newly appointed U.S. administration has just moved into the Oval Office, and the 47th president has already made it clear that he wants to impose more tariffs on goods manufactured outside his country. In numbers, we’re currently looking at a 25% tariff for Canada and Mexico, and as much as 100% on imported goods from the BRICS nations (Brazil, Russia, India, China, South Africa).
If we look closely at the automotive industry, most of the top car manufacturers selling vehicles in North America have established a global presence spanning across multiple continents. Most have production factories somewhere in North America, ranging from Mexico all the way north to Canada, but they also import parts from Europe and Asia. While these manufacturers have factories all over the world, the U.S. remains a central hub for parts distribution in our country. As of now, nothing leads us to believe that the manufacturers could move their current distribution logistics to Canada to avoid the tariffs, but it might be something they will consider.
Impact on Parts Procurement
The increase in tariffs will most likely have an impact on part prices in the collision industry in Canada for parts that would transit through the U.S. Simply put, tariffs are just an added tax that needs to be paid when parts are purchased. In our situation, the collision shop will pay the added tax during the parts procurement process. If the file has been initiated by the insurance carrier, then the added dollars will be transferred to the insurer, either directly or in the form of a supplement. The ripple effect of these tariffs could go a long way and even affect the insured months or years later if the insurance carrier needs to raise their premiums to cover these added expenses.
In the past, we have observed that tariffs have also disrupted established supply chains. Industry experts are talking about a known process called “front-loading,” which involves importing goods at a higher volume than anticipated before the new tariffs take effect. All of this is to avoid the increased charges that the tariffs would bring. However, shipping higher-than-usual volumes can also raise demand for ocean freight and increase overall container costs. I’m sure some of you will remember what happened during the pandemic when container prices peaked at around $10,000 a pop. This had a direct impact on prices and availability. And speaking of prices, when we see inflation or a sudden rise in overall part prices in the industry, those prices tend to become the new normal and to not go back to their original lower levels. Is this to be expected with the new tariffs? If so, then premium will definitely be impacted in the long term.
Rise in Backordered Parts
In the past, the imposition of tariffs has also contributed to an increase in backordered parts. Suppliers facing higher import costs may reduce their inventory levels to mitigate financial risks. Consequently, collision repair shops could be faced with increased delays, leading to operational inefficiencies as well as longer-than-usual cycle times for customers.
Higher tariffs imposed by the U.S. government would definitely be responsible for some disruption in part prices and availability in the collision industry, but they are not the only driver. We must be aware of other disruption sources, such as wars, strikes and pandemics, to name a few. Obviously, nobody wants to live another COVID-19, but chances are we are going to face something similar during our lifetime. If we think about labour strikes and the year 2024 alone, at least three events come to mind. First, the Canada Railway Dispute, which could have had a big impact in August but was avoided last minute. Then, there was the East and Gulf Coast Ports Strike in the U.S., which affected ports from Maine to Texas in October. And lastly, although the impact on the collision industry was less significant, there was the Canada Post strike, which lasted 30 days before workers were ordered back to work by the Labour Minister of Canada himself.
To sum up, these situations underscore the vulnerability of global transportation networks to labour disputes, emphasizing the need for effective negotiations and contingency planning to mitigate disruptions in the global supply chain.
While we won’t know officially until February 1st whether the U.S. president is using these tariff threats as a negotiation tactic to open dialogue with other countries, I think the world must prepare for the worst and accept that some level of disruption will happen over the next six months in the parts procurement business.
About ProgiParts
Progi offers a parts procurement solution for collision shops across Canada. It allows shops and suppliers to easily share part prices and availability. While OE parts represent a big portion of the overall sales in the collision industry, the ability to source parts from the recycled and aftermarket industries is also a key component of the platform. In the context of today’s tariff threat, the system enables shops to buy the best available part at the best price possible. It is also feasible to monitor price fluctuations within ProgiParts with the help of the new instant price feature released in 2024.
Written by Jean-François Potvin (P. Eng.), Senior Product Manager, in collaboration with Diane Chaîné, President.
