By Tim Esterdahl
A recent World Trade Organization ruling that favors U.S. automakers may pave the way for an advantageous ruling on another U.S. complaint; however, such a ruling could hit consumers in the pocketbook.
In May the WTO ruled that Chinese tariffs on vehicles exported from the U.S. to China violated world trade policies; those tariffs have been eliminated. Now the U.S. government is hoping the WTO will provide a similar outcome to its charge that China subsidizes its auto-parts exporters. This practice gives Chinese exporters an unfair advantage over U.S. auto-parts suppliers, according to the Obama administration. The subsidies allow Chinese auto-parts makers to undercut the prices of their competitors. This explains why American consumers see so many "Made in China" labels on parts in U.S. auto stores. To keep costs down and consumers happy, these retailers stock the lowest-priced merchandise that meets U.S. specifications. That merchandise often comes from China.
We contacted the Specialty Equipment Manufacturing Association, which has a long history of trying to bring global auto suppliers together. This was the assessment SEMA offered in a statement:
"The free flow of U.S., and foreign, branded specialty automotive equipment benefits everyone — enthusiasts and industry alike and is a proven engine of global economic growth. … A condition of joining the WTO [there are 159 WTO members, and China is among them] is a pledge to avoid instituting policies which would interfere with trade.
"At issue — and the basis for a U.S. case pending before the WTO — are Chinese subsidies of auto parts firms which agree to manufacture in China and meet government-set export targets. The incentives include grants, loans and preferential tax treatment among other benefits. WTO outright bans such export subsidies due to their market distorting nature.
"While U.S.-branded performance products are manufactured worldwide, including in China, a significant portion of these products are made in the U.S. American firms should reasonably expect to gain market share at home and abroad if they can produce better products at more attractive prices than their competitors. But U.S. companies shouldn't have to compete against firms receiving government subsidies and shouldn't be forced to make decisions on where they manufacture based on a government's manipulation of the marketplace."
If the WTO rules in favor of the U.S., like it did on the auto export issue, this could be good news and bad news for consumers. On one hand, U.S. auto part manufacturers (and their employees) would benefit from such a ruling. On the other, consumers might pay more for repairs and after-market parts.
Parts Prices Could Rise
Most parts from original equipment manufacturers are made in the U.S., Japan, Mexico or Canada. However, "some of the parts that make up each component come from Chinese manufacturers," said Jason Lancaster, president of Spork Marketing, which specializes in auto parts marketing. "Therefore, all parts [manufacturer or otherwise] may tick up a couple of percent in terms of cost."
Pickup truck prices could also rise with automakers passing any increase in parts prices to the consumer. The 2015 Ford F-150 is a good example. Aluminum costs more to produce than steel. Will Ford eat the price increase or pass it along to consumers? We don't know yet.
Auto repairs done with manufacturer parts would get more expensive if the WTO rules in favor of the U.S. A&J Collision Repair owner Jody Gatchell said that there are a few insurance companies that require manufacturer parts be used in collision repairs. Once again, like Ford, the increased prices of these parts have to be paid for somehow. Most likely it will come in the form of higher premiums and/or those insurance companies dropping the manufacturer equipment requirement.
Effect on After-Market Prices
A favorable ruling would affect after-market body parts more than most segments of the auto industry since most of them are manufactured in China. This could impact insurance rates, but probably not. Labor costs more than parts when it comes to repairs, and the cost to repair a particular vehicle is a relatively small portion of the typical insurance premium.
Any price increase would affect shops like Gatchell's Arizona business. He said it is common for repair shops to use after-market or used parts. Unless the insurance company insists his shop use a specific manufacturer part, he searches for a cheaper part. So the higher prices would cause his shop and others to work harder with less in order to control costs.
A WTO ruling on this issue seems imminent in light of the recent export ruling. Such a ruling could impact consumers for years to come.
Cars.com photos by Mark Williams