Trump Presidency Promises Turbulence for the Auto Industry

President-elect Donald Trump’s return to the White House is set to bring significant changes to the auto industry. The Biden era’s focus on rapid electrification, global trade, and an active FTC will be replaced by an administration promising a renewed focus on oil and gas, protectionist manufacturing policies, and a reduced regulatory state. While experts can only speculate on the incoming administration’s changes, several areas have already been highlighted by Trump and his team.

Electric Vehicles

The administration’s approach to the EV revolution remains uncertain. Historically, Trump has been hostile to global electrification, referring to the Biden-era EV push as a path to the “complete obliteration” of the domestic auto industry. However, the end of his campaign saw the notable presence of Tesla’s Elon Musk, who may expect EV-friendly changes in return for his support.

Trump plans to ease the aggressive push by the Biden administration to transition to electric vehicles nationwide. Biden-era targets aimed for approximately two-thirds of all new vehicles sold to be electric by 2032. The Trump administration has no such interest. Vice President-elect J.D. Vance has mentioned repurposing EV tax credits for gas vehicles, aligning with the administration’s intent to revive the gas and oil industries. Recently, Trump’s transition team, including Musk, have stated their intent to nix the $7,500 consumer tax credit for EVs. Acknowledging this would dampen Tesla sales, Musk noted it would pack a more significant punch to Tesla’s competitors.

These changes could particularly impact manufacturers heavily invested in EVs, as they will have to contend with rollbacks of Biden-era incentives that fueled the EV push. As Republicans secure complete congressional control, Trump may adjust the guidelines for the Inflation Reduction Act, including individual and commercial tax credits for EVs.

Musk and other likely administration members have indicated an intent to shift regulations from the state to the federal level. For instance, the Trump era will likely see challenges to California’s zero-emissions requirements, despite several major OEMs already committing to meet them. This fight will take time, likely years, and as it unfolds, electrification efforts will likely continue at the state level.

The continued instability of EV politics is not new but continues to challenge the automotive industry, which is forced to take its foot on and off the gas (or battery) pedal due to the stark divides between administrations.

Global Supply Chain and Manufacturing

Trump has made clear he will force a shift toward domestic auto manufacturing by imposing significant tariffs on foreign vehicles and parts. Chinese tariffs, already in place under Biden, will likely be expanded to upwards of 20 percent. Trump has singled out Mexico as a particular target, stating the country “is not going to sell one car into the United States” and suggesting tariffs on Mexican vehicles that could exceed 200 percent. Musk has paused plans to build a gigafactory in Mexico, and OEMs with significant manufacturing in Mexico face uncertainty.

These changes come as profits from domestic manufacturing of EVs are already shrinking due to increased development costs and competition from China. Without tax incentives, the impact could be severe. It is possible, though not guaranteed, that trade partners like Europe could move some manufacturing efforts to the U.S., but this would take significant time, likely more than the Trump administration will have.

In the meantime, increased import costs will leave OEMs with few choices: absorb the costs or pass them on to consumers. Critics believe the latter is more likely, and car buyers, already delaying purchases due to high prices, will likely face increased costs and decreased choice.

CARS Rule

The FTC’s Combatting Auto Retail Scams (“CARS”) Rule is expected to be one of many Biden-era regulatory steps potentially in play under the new administration. The CARS Rule aimed to address bait-and-switch and other unfair tactics used by dealers, requiring transparent disclosure of costs, fees, and vehicle information, and requiring express consent from consumers.  The Rule was adopted by a 3-0 vote of the Democratic appointed FTC Commissioners prior to the confirmation of current Republican Commissioners. The CARS Rule is wildly unpopular with dealers and the National Automobile Dealers Association has challenged the FTC’s authority to enact the rule in a case that was recently heard by the Fifth Circuit. The incoming administration may well agree with petitioners’ arguments that the CARS Rule represents an overstep by the Commission. Indeed, former Commissioner Christine S. Wilson, appointed during Trump’s first term, dissented from the Commission’s vote to seek comment on the then-developing CARS Rule, anticipating regulatory delay and “unintended but negative consequences” such as stifled innovation, hiked prices, and decreased consumer choice.

An about-face on FTC regulations already occurred during Trump’s first term, with the rejection of various Obama-era efforts. The new administration seems to have no plans to ease its general hostility to the “regulatory state,” and new FTC appointees can be expected to roll back or abandon various campaigns of the current administration. Current FTC chair Lina Khan, who has been highly active in her role, will almost certainly be replaced. Though the FTC was not dormant under Trump’s first term, including within the auto industry, it will likely not maintain the intensity of the current Biden administration, and determined regulatory efforts will likely need to be picked up by the states.

However, some of the CARS Rule’s changes may survive under other legislation. For instance, its requirements as to price transparency may continue under the more general FTC “Rule on Unfair or Deceptive Fees,” which requires all advertising for goods and services to display the total price, with all mandatory fees. This would essentially require auto dealers to meet the “offering price” requirement of the CARS Rule, i.e., informing consumers of the final total price for which the dealer would sell the vehicle to any consumer.