Pending auto tariffs; future of this hobby

[JimStone]

This hobby is expensive. That's just a fact. Even a "budget" build will typically run north of $50k.

And if the threatened 25% auto parts tariffs kick in May 3rd, it becomes that much more expensive. Entirely "American-made" is mostly a fantasy, but even those American manufacturers will eventually be forced to up prices due to material cost increases. This is on top of the already steep inflation with COVID.


This got me thinking about what the future of this hobby is, and Factory Five's future.


Who can really afford to partake in this sort of thing anymore? The majority of the country cannot even dream of it. Most of the rest must wait until older adulthood. Hell, my wife and I are doctors and I can't even afford to get my engine/trans yet for my Coupe because it's well more than $20k before taxes.


For those who have finished their builds, if you were starting today would you still pursue it? Would you change anything to make it more affordable? Do you think Factory Five will weather this okay?

Gotta love FFR for waiting this long to increase their prices. There's no way they survive if they don't.

[rthomas98]

Time for me to help explain what’s happening.
I work in Supply Chain at a major OEM. Tariffs, although initially scary, actually do not drive up costs as much as you might think. There will be an initial spike in costs as tariffs hit and supply chains need to be reorganized. However, OEMs are taking immediate and long-term actions to mitigate these costs.

Immediate:
USMCA has now become a very real factor. Prior to the tariffs on Canada and Mexico, companies faced no penalty for being non-compliant with USMCA. That has changed. We’re now ensuring that supply chains are properly certified, as USMCA-compliant goods are fully exempt. This means we can still use Chinese, Indian, etc., parts in Canada and Mexico—as long as they don’t exceed 75% of the part's content, based on RVC (Regional Value Content) and LVC (Labor Value Content).

Reciprocal tariffs are still being lobbied by OEMs. It’s likely they’ll end up being much lower than initially advertised when they take effect after the 90-day pause.

Section 232 tariffs on steel and aluminum are prompting OEMs to realign their supply chains. Canada and Mexico are now sourcing steel from within their own countries or overseas, provided it still qualifies under USMCA. U.S. companies are sourcing domestically. You’d be surprised how much steel moves back and forth across the border—for rolling, slitting, and storage.

Negotiations have already begun with the supply base regarding tariff cost-sharing. This is similar to what happened with the 25% 301 tariff on China in 2019 (which, by the way, was never removed). These negotiations typically result in either piece price reductions or lump-sum payments when tariffs are applied. This allows a smaller fraction of the costs rolled to the customer.

Long Term:
Much of the manufacturing previously done overseas will return to North America. As long as the USMCA exemptions remain in place, Mexico and Canada will benefit significantly, especially given the limited labor availability in the U.S.

There will also be increased investment in U.S. automation to offset labor shortages. That said, some products—even with tariffs—will still be cheaper to purchase from China. Items like fasteners, basic plastic components, and simple stampings will likely still be sourced there. Just like with the 2019 301 tariffs, I expect exemptions will continue to exist for these kinds of goods.

The biggest losers here will likely be TEMU and Amazon, as the low-dollar exemption that previously existed under older tariffs has been removed.

On Costs and Investment:
The biggest barrier to controlling costs right now is interest rates—not tariffs. The push to lower them has little to do with housing and everything to do with capital investment. OEMs borrow to build new factories and purchase the equipment needed to fill them. The current WACC (Weighted Average Cost of Capital) is between 15–20%, compared to 8–10% before the rate hikes, depending on a company’s borrowing strength. For tariff-related pain to truly be temporary, interest rates need to come down and the more extreme tariffs need to be softened.

Now, as for my build—would I still do it today?
Yes. But I built a very no-frills car: a roadster with the base 302 from Blueprint Engines and a solid rear axle. I hope I brought a little clarity to the situation. I know it is confusing and it will get worse then better. Any major increases right now will be the result of the current panic buying thinking prices will go up. They will just not as high as everyone thinks.

[JimStone]

Time for me to help explain what’s happening.
I work in Supply Chain at a major OEM. Tariffs, although initially scary, actually do not drive up costs as much as you might think. There will be an initial spike in costs as tariffs hit and supply chains need to be reorganized. However, OEMs are taking immediate and long-term actions to mitigate these costs.

Immediate:
USMCA has now become a very real factor. Prior to the tariffs on Canada and Mexico, companies faced no penalty for being non-compliant with USMCA. That has changed. We’re now ensuring that supply chains are properly certified, as USMCA-compliant goods are fully exempt. This means we can still use Chinese, Indian, etc., parts in Canada and Mexico—as long as they don’t exceed 75% of the part's content, based on RVC (Regional Value Content) and LVC (Labor Value Content).

Reciprocal tariffs are still being lobbied by OEMs. It’s likely they’ll end up being much lower than initially advertised when they take effect after the 90-day pause.

Section 232 tariffs on steel and aluminum are prompting OEMs to realign their supply chains. Canada and Mexico are now sourcing steel from within their own countries or overseas, provided it still qualifies under USMCA. U.S. companies are sourcing domestically. You’d be surprised how much steel moves back and forth across the border—for rolling, slitting, and storage.

Negotiations have already begun with the supply base regarding tariff cost-sharing. This is similar to what happened with the 25% 301 tariff on China in 2019 (which, by the way, was never removed). These negotiations typically result in either piece price reductions or lump-sum payments when tariffs are applied. This allows a smaller fraction of the costs rolled to the customer.

Long Term:
Much of the manufacturing previously done overseas will return to North America. As long as the USMCA exemptions remain in place, Mexico and Canada will benefit significantly, especially given the limited labor availability in the U.S.

There will also be increased investment in U.S. automation to offset labor shortages. That said, some products—even with tariffs—will still be cheaper to purchase from China. Items like fasteners, basic plastic components, and simple stampings will likely still be sourced there. Just like with the 2019 301 tariffs, I expect exemptions will continue to exist for these kinds of goods.

The biggest losers here will likely be TEMU and Amazon, as the low-dollar exemption that previously existed under older tariffs has been removed.

On Costs and Investment:
The biggest barrier to controlling costs right now is interest rates—not tariffs. The push to lower them has little to do with housing and everything to do with capital investment. OEMs borrow to build new factories and purchase the equipment needed to fill them. The current WACC (Weighted Average Cost of Capital) is between 15–20%, compared to 8–10% before the rate hikes, depending on a company’s borrowing strength. For tariff-related pain to truly be temporary, interest rates need to come down and the more extreme tariffs need to be softened.

Now, as for my build—would I still do it today?
Yes. But I built a very no-frills car: a roadster with the base 302 from Blueprint Engines and a solid rear axle. I hope I brought a little clarity to the situation. I know it is confusing and it will get worse then better. Any major increases right now will be the result of the current panic buying thinking prices will go up. They will just not as high as everyone thinks.

Awesome information!

You're right, there is a ton of confusion out there (**points finger at self**) and that will drive panic buying.

I've been in contact with Blueprint nearly weekly, asking if they have a price hike coming. So far, they say no.

I hope you're right and this won't be as bad as it seems on the surface

[PNWTim]

Jim - to your earlier point any hobby that is "motorized" is expensive. Take your pick - boats, airplanes, new cars, classic cars, kit cars, go karts you name it. These are closely followed by kids, guns, horses, hunting and adventure travel. All kidding aside, I kept an itemized receipt list when I built my Camaro and the Daytona is a bargain comparatively speaking...

I too have have a concern about my Coyote and T-56 order. My understanding is the Coyotes are initially assembled in Canada but finished in Michigan. T-56's (and probably TKO's) are made in Mexico so I may have to pull the trigger next week if I am looking at a 25% increase. I don't know how to confirm this will actually happen. I simply haven't ordered them because I don't want to store them but this may drive an accelerated decision.

[Skuzzy]

It is not just the tariffs which can impact the costs. It is the crashing markets which concern me. Being retired, I have to curtail discretionary spending until the markets recover. My investments are taking a beating.

Would I start a build today? No way. The administration is too unpredictable and they do not seem to care about the problems they are creating, but, like PNWTim, I am looking at buying a couple of high ticket items which *could* go up dramatically.

The USMCA will help today, but what about tomorrow? It *could* go away. With this unstable administration, you just do not know. Nothing appears to be safe.

[ggunter]

Thanks, RThomas, awesome information. That is a perspective that the news doesn't have a clue about, or it just doesn't fit their narrative. These hobbies we are involved in, are like any other hobby, sport, etc. they will take as much money as you want to throw at them. Before I built my car I was into Giant Scale RC planes. Talk about something that will take a lot of your money. I have had $5,000 dollar days when a crash just wipes out your 5K plane. (Luckily only had one of them or it would have been a short involvement in that hobby.) It all depends on what your priorities are in the hobby/sport or whatever you want to spend disposable cash into. Be it a pool, a camper, a new pickup, an addition on the house. These cars we buy are toys, not a one of us needs them. But they are recreational toys. They make you feel good about what you spent your hard earned, money in and the enjoyment you get every time you take it for a drive. At least that's how I justify how I spend my money. I still think the tariff issue will iron itself out within six months and the stock market (based mainly on fear and greed) will take off once the capital investments from all these companies start to take hold. And Skuzzy, hang in there, I like you am retired and depend on my investments. You haven't lost anything unless you sold it. The best is yet to come. And to everybody else. Happy Motoring, it's take your car out for a drive day.

[Skuzzy]

Thanks, RThomas, awesome information. That is a perspective that the news doesn't have a clue about, or it just doesn't fit their narrative. These hobbies we are involved in, are like any other hobby, sport, etc. they will take as much money as you want to throw at them. Before I built my car I was into Giant Scale RC planes. Talk about something that will take a lot of your money. I have had $5,000 dollar days when a crash just wipes out your 5K plane. (Luckily only had one of them or it would have been a short involvement in that hobby.) It all depends on what your priorities are in the hobby/sport or whatever you want to spend disposable cash into. Be it a pool, a camper, a new pickup, an addition on the house. These cars we buy are toys, not a one of us needs them. But they are recreational toys. They make you feel good about what you spent your hard earned, money in and the enjoyment you get every time you take it for a drive. At least that's how I justify how I spend my money. I still think the tariff issue will iron itself out within six months and the stock market (based mainly on fear and greed) will take off once the capital investments from all these companies start to take hold. And Skuzzy, hang in there, I like you am retired and depend on my investments. You haven't lost anything unless you sold it. The best is yet to come. And to everybody else. Happy Motoring, it's take your car out for a drive day.

Oh no. Selling is the worst thing you can do when the market dives. That is when you buy. Unfortunately, what I lost is the regular monthly draw from my gains. With inflation increasing, I already reduced that draw to cover the rise of inflation. Right now I am in the hole as it pertains to the value of my investments and that is not good.

I am more skeptical on the market recovery than you are as this administration is just too chaotic to track reliably. Everything they say seems to be good until the next time they say something. The only thing I have control over is how much I can spend. Moving the investments around helps a little, but the world economy is being impacted by all this.

I have no choice but to hang in there and I will, but I would absolutely not be buying any kind of kit right now, unless I was stupid rich.

[J R Jones]

Skuzzy, I am in the same boat, my budget is reduced and investments require monitoring. It is hard to change things to less volatile just now.
There are three perspectives here:
Those that have not committed, where a delay is conservative, at the risk of increased pricing.
Those that are not finished where bailing out results in depreciated investment. Finishing with increased costs can be a financial hardship, leading to selling and recovery of investment. Maybe a better ROI.
If your project is done you can enjoy yourself.
In times like this there are distressed opportunities leading to good deals, and a fixed price is easier to deal with than a project with an uncertain future.
In hard times with reduced sales one of two things can result. Lower prices to improve volume, or increased price to cover costs. Those businesses with a market monopoly have better options
jim

[JimStone]

I think we can all agree that Dave Smith is a really smart and forward thinking guy. Under his leadership, I'm sure FFR will continue to thrive but they'll have to adapt.

I'm not sure how much of their products will be affected by tariffs. Dave told me the Coupe carbon fiber bodies were from a company in Asia, but can't remember if it was China.



Btw
After PNWTim mentioned the T-56's are made in Mexico, I went ahead and ordered mine last night, haha

[Aleinsteingenius]

I was so proud of myself for ordering my new workbenches and mini split before I needed them to beat the tariffs. As I was unloading all the boxes from the truck I noticed the boxes said "Made in America". I just assumed....