North American motorcoach manufacturers may feel some effects from the Trump tariffs on Chinese imports, while China-based bus builder CHTC will be hit especially hard, industry executives said. Meanwhile, all motorcoach operators could feel the pinch of higher tire and component prices.
The Trump Administration has announced three rounds of tariffs on Chinese goods, saying they are needed to protect national security and intellectual property rights. The largest list, covering $200 billion of imports, imposed a 10 percent tariff on Sept. 24. That tariff will become 25 percent on Jan. 1.
The tariffs cover thousands of components and final products, ranging from frog legs to manure spreaders to “airplanes and other powered aircraft.” Transportation parts and vehicles are thoroughly targeted—bicycles, motorcycles, tractors, rail locomotives, helicopters, spacecraft, all sorts of water vessels and “motor vehicles to transport persons.”
Additionally, the tariffs list such motor vehicle sub-components as gaskets, washers, V-belts, rubber seals and hoses, body stampings, drive axles, mufflers, exhaust pipes, clutches, “parts and accessories of motor vehicles of cast iron” and parts of gear boxes, steering boxes, suspension systems and radiators.
In all, the 25 percent tariff could increase the cost of motor vehicles assembled in the U.S. by an average of $4,400, according to the Center for Automotive Research in Ann Arbor, Mich.
Domestic motorcoaches
“The tariffs obviously impact the cost of commodities we use to build our coaches, making them more expensive to produce and purchase. We continue to monitor the situation closely,” says Emmanuelle Toussaint, vice president of legal and public affairs for Prevost and Nova Bus in Sainte-Claire, Quebec.
Ian Smart, president of Motor Coach Industries (MCI) of Des Plaines, Ill., says the fact the company buys nothing directly out of China means no immediate impact on pricing. They could boost production costs for MCI suppliers, however.
“I am sure we will see that as a specific reason why one of our vendors is saying his price is going up,” Smart says. “I think we would manage that the same way we do today, which is have a conversation about the details of your price increase and negotiate to something that we think is fair and reasonable. It will be another price increase item that goes into the discussion we have with most of our suppliers, at least annually.”
Smart says the new “U.S. Mexico Canada Agreement” (USMCA), announced Sept. 30, offers a balancing benefit as it removes a source of uncertainty in North American trade. The agreement replaces the NAFTA agreement that had been in place since 1994.
“The agreement is called something else, but it seems an awful lot like the old one. For us and the industry as a whole, it is good news.”
Where rubber meets the road
Product category 4011.20.10 in the Chinese tariff list is “new pneumatic radial tires, of rubber, of a kind used on buses or trucks.” Tire manufacturing is a major U.S. industry, but Chinese tires claim a significant market share. The tariffs also cover components such as woven fiberglass tire cord fabric used to build tires.
“Even though a lot of motorcoach fleets don’t use Chinese tires, the tariffs will drive the market up. There has been pent-up demand for pricing increases by the U.S. manufacturers,” says Bill Kaiser, president of Motorcoach Tire Sales in Columbus, Ga. “Chinese tires are such a large part of the market, their price increases could increase everyone’s pricing.”
Tires are manufactured at 62 factories in North America—many owned by foreign-based brands—and several more are planned, according to the trade publication Modern Tire Dealer. In 2017 the domestic factories shipped 19.7 million replacement truck and bus tires and 5.4 million original equipment tires. China exported 6.2 million bus and truck tires to the U.S. last year and is expected to send at least 10 million this year.
Motorcoach operators are less likely than trucking companies to use Chinese tires, Kaiser says.
“I would estimate the market for Chinese tires in the motorcoach industry is 5 to 10 percent. Operators who carry passengers acknowledge there is more of a safety issue. Where we do see it sometimes is motorcoach operators putting a better brand on the steer axle and Chinese tires on the drive and tag axles.”
Motorcoach tires range from $350 to $700 each, explains Kaiser, who handles several brands (none Chinese) and has shipped tires to 43 states. The Chinese tariffs will boost prices for truck and motorcoach tires in general, he says, “but it will be hard to speculate how much.”
Domestic tire makers are facing increased costs for raw materials such as rubber, carbon black, steel and oil, Kaiser adds. Their transportation costs are climbing due to higher fuel costs and the truck driver shortage, which is boosting wages—all increases that are passed along to customers.
Motor vehicles to transport persons
Tariff line item 8702.10.31 aims squarely at Chinese motorcoaches: “Motor vehicles w/diesel engine, to transport 16 or more persons.”
That could erode the U.S. market for Chinese-built motorcoaches, explains Flora Zheng, vice president of CHTC USA in Chino, Calif. “We have a competitive price. If we put extra tariffs on it, our price becomes non-competitive.”
CHTC, a recent entrant in the North American market, has sold 40 motorcoaches here, Zheng says. Unfinished shells are shipped from the CHTC Bus Group in Nanchang, China. Many U.S.-made components are installed in Chino, where CHTC employs 55 people.
“The major part made in China is the body,” she says. “The engine, transmission and a lot of auto parts—lights, driver’s seat, ABS, seating, hoses and batteries—are added here.”
Before the tariff issue arose, CHTC set a goal of selling 50 motorcoaches in the U.S. in 2018 and 100 in 2019, Zheng said. The company is preparing an application for exemption with the office of the United States Trade Representative. CHTC has a central argument to support its exemption request, Zheng says, that most of its components are made in the U.S.
The CHTC HT-35 and HT-45 motorcoaches carry Cummins engines, Allison transmissions and other domestic parts, she said.
Meanwhile, Zheng adds, “We are trying to lower our costs in China. We also are looking for some other components that have good performance but lower prices.”
The U.S. industry
“IP theft protections are critical but tariffs on motor vehicle parts manufacturers will be ineffective in attaining these goals: to the contrary, prohibitively high tariffs on these products will disproportionally harm U.S. businesses,” stated Senior Vice President Ann Wilson of the Motor & Equipment Manufacturers Association (MEMA).
In testimony before the U.S. Department of Commerce in July, she said vehicle manufacturers and suppliers employ 871,000 people in all 50 states and represent the largest manufacturing sector in the U.S. Employment by those manufacturers has increased 19 percent since 2012.
In a survey of association members, 80 percent of companies said they expect harm from the tariffs. “Respondents indicated they would cut U.S. jobs, cut or delay research and development investment, shift production outside of the U.S. and/or modify sourcing,” Wilson said.
“MEMA member companies operate in an integrated global supply chain with both suppliers and customers inside and outside of the United States. This model has contributed to continued growth in vehicle production and jobs here in the U.S. The importation of motor vehicle parts is not a risk to our national security. However, the imposition of tariffs is a risk to our economic security.”
