In debate: 25% import duty on classic cars in the US
It was late afternoon in Europe, early morning in the USA, when the e-mails started pouring in. They were all from friends, event organizers and collectors on the other side of the Atlantic, and they were all saying the same thing: President Donald Trump’s proposal to slap a 25% import duty (representing a huge increase from the current 2.5%) on all cars and spare parts entering the United States of America had been published in the Federal Register of May 30th, 2018, thereby formalizing a procedure, started a week earlier, to have the law approved.
This kind of approach, implemented by a President of the USA in the form a presidential decree, bypasses the whole phase of political discussions, analysis and consideration by the Senate and Congress. It is a rather undemocratic way of acting, usually only used in emergencies when it is necessary to fast track decisions. Given that this Notice of Request for Public Comments and Public Hearing envisaged a June 22nd deadline for registering to make comments, and the hearing date has already been set for July 19th and 20th, there is clearly a very real and serious risk that this law will be passed. Formally, this step is being justified as a national security measure, it being argued that imports of cars, SUVs, light trucks and light vans, and also spare parts, constitutes a serious threat to the USA, liable to weaken (or kill off) domestic manufacturers and leave them unable to react adequately to help the country in times of need.
Nowhere does the request for this import duty specifically mention classic cars (or their parts) or used vehicles. Most likely, President Trump, in coming up with this idea, did not even give the classic car world a thought. Bureaucracy, however, can be a dangerous thing, anywhere in world. In fact, all that is not specifically excluded must, in most cases, be considered included. What this means, for us, is that as soon as this law goes through, all cars imported into the USA (not only new, but also classic and used ones) will be subject to an extra 25% in tax on their declared value, and the same applies to spare parts (maybe even used ones too). This will undoubtedly have repercussions on the car and classic car worlds. The real impact this measure will have is currently hard to forecast, but it will inevitably felt by the entire car collecting community, given that 50% of all the classic cars in the world are currently in the USA.
Some considerations on the import duty on classic cars
It is important to stress that we have, so far, no answers to give. It is hard to envisage how this 25% levy on cars and car parts (providing it is approved of course) might affect the classic car world, as there are still so many aspects that we would need to clarify with the USA government before trying to draw any conclusions. There are, however, several important things that we can say for sure:
- values will be affected in an artificial way, even though right now it is hard to say in exactly what way
- the freedom of today’s classic car market, in which classics are easily sold and bought all around the world, will become a thing of the past
- spare parts will be more expensive, which will force many to restrict their use of their cars and therefore reduce the number of cars worth restoring
- the impact will be felt by the classic car world as a whole, and have a knock-on effect on service providers. The services offered by those managing to survive in what will become a shrinking market will inevitably become more expensive. And because there will also be those that do not survive, some of the services that are easily sourced today will become difficult to find.
We asked four people, each an expert working in a specific area of the classic car world, to give us their thoughts.
Gary Bobileff, President and founder of Bobileff Motorcar Co. of San Diego (California)
He’s specialized in restoration, maintenance and trading of Italian supercars, classic and modern.
This law hasn’t been given enough thought. The original intent was undoubtedly to place a tax on manufactured products, which classic cars, being old and used, are not! This is why I strongly believe that they, and parts too, should not be included in the measure. It will definitely hurt the market: some models might increase in value artificially, simply because of a sort of shortage on the market, but most will go down in value, and the more recent they are the more they will be affected, because with spare parts becoming at least 25% more expensive, people will start selling cars they feel they can no longer afford to run, or will simply decide they don’t want to be spending crazy amounts of money maintaining them.
It will definitely hurt the market: some models might increase in value artificially, simply because of a sort of shortage on the market, but most will go down in value.Gary Bobileff
Models that we consider youngtimers or instant classics, like the Ferrari 355, 360, 430, 550 or Lamborghini Gallardo or Maserati Granturismo, will fall in value dramatically because of this forced hike in the cost of parts. Some diehard car guys will try to hold on, but others will switch to other models like the Chevrolet Corvette or Ford GT40; many will simply decide to focus on something completely different. This law, if it remains as it is, will have a double effect: in the short term it will have a heavy impact on trade which, in percentage terms, will be felt by fewer people.
In the longer term, however, it will impact on the cost of maintaining European cars, and in this case a much larger percentage of classic car collectors (and owners of modern cars too) will be affected. Only then will the full and devastating force of this import tax become apparent, and people will start to react. Unfortunately, compared to modern cars, classics represent a very small niche, not big or powerful enough to raise a stink over something as wrong as this proposed law.
Jakob Griesen, Head and Vice President
US Motoring Department at Bonhams (international auction house with headquarters in the UK).
Of course we have discussed this topic internally, but it is difficult at this stage to create a strategy or act in any way: there are too many unanswered questions, first of all, whether or not classics, and parts for classics too, will be subject to this 25% import tax.
Where the values are in millions, we enter a very rarefied market in which a buyer who truly wants a particular car … will nevertheless be willing to consider paying more. At this level …, it wouldn’t be impossible or too difficult for them to buy a car in Europe and register it outside the USA.Jakob Griesen
We know that the market, worldwide, is pretty balanced, and moves and adapts according to demand, currency fluctuations and so on. For sure, if this law stays as it is, we will see fewer Americans buying at European auctions or buying cars with European documents, because they will want to avoid the extra 25%.
One consequence is that the value of classic cars or modern supercars already in the USA will increase, and there will be a wider gap between unique or very rare cars and more normal cars, which are easier to find and more readily available on the market.
More humble cars, like Jaguar E-Types, smaller Ferraris and “normal” Porsches will stop crossing the Atlantic, and we’ll no longer see these types of car arriving from other markets. At higher levels, where the values are in millions, we enter a very rarefied market in which a buyer who truly wants a particular car, perhaps one that is almost impossible to find, will nevertheless be willing to consider paying more in order to have it. It is also true that, at this level, collectors tend to have several homes dotted around the world, and it wouldn’t be impossible or too difficult for them to buy a car in Europe and register it outside the USA. We firmly believe that that this law, right or wrong, was conceived with new cars in mind and was not intended to involve classics, as old cars account for only a very small percentage of the car market as a whole. This is why we hope, and believe, that the 25% tax on imported cars will not include classics. Also because, with new cars, manufacturers are bound to react promptly, offering importers an extra discount so that customers’ wallets are not too hard hit, but this of course is not an option for classics.
Marc Hyman, founder of Hyman Ltd Classic Cars.
He’s active in the collector car trade for 46 years, he is himself a collector, based in St. Louis (Missouri).
For me, the whole concept of a 25% import tax doesn’t make any sense at all. At first I wasn’t too worried, thinking this will never happen, but then I saw the very same concept being applied to other areas of business (for example, steel and alloy) and I started to realize that, unfortunately, this really could happen to the classic car world. The people in charge of law making are wanting to place a tariff, a big one, on all cars coming into the USA, but they haven’t thought this through, or looked at whether there are any cars that should be exempted.
They simply haven’t considered vintage cars at all, or all the related services and business. The problem of the classic car world is its small size; in fact, we are off the radar for many people. Few appreciate the size of this industry, because while we are huge in terms of our economic impact and the turnover we generate in dollars, we are a small community and don’t have the political lobbying power we need to get noticed. Two thirds of the American classic car market is made up of cars enjoyed by ordinary people, who collect normal American cars worth between USD 15K and 150K, which they drive around, and trade freely, in auctions, privately, through the internet or through advertising. In this regard, they won’t be affected by this change.
The international collector car business … will be heavily impacted. At present, these cars, which often cross borders, are a sort of international currency; their value is affected by the market and, in part, by currency fluctuations.Marc Hyman
Instead, when it comes to their normal everyday cars, which are often imported, they will likely be affected more. The international collector car business, which tends to involve high-end cars, traded for amounts ranging from 150,000 to millions of dollars, will be heavily impacted. At present, these cars, which often cross borders, are a sort of international currency; their value is affected by the market, but in a very natural way and, in part, by currency fluctuations.
At present, if I want to import a car into the USA, I have to pay an import tax of 2.5%, an acceptably low level that doesn’t influence my final decision on whether or not to make the purchase. Most of the European countries charge a little more, applying import taxes of around 6%, but still not a rate high enough to influence the final decision to purchase. But if this suddenly soars to 25%, it is bound to have an impact — in the order of a quarter of a million dollars for a car with a sale price of USD 1 million! This is clearly more than enough to put a lot of people off buying. On a practical level, this measure will effectively bring the importing of cars into the USA to an end, and likely result in retaliatory measures by other countries, which might decide to impose a heavy tariff on cars entering their country from the USA. This will paralyze the international classic car trade and entirely go against the course of history, given that the world today is one big market place.
Donald Osborne, automotive consultant, historian, journalist
He’s accredited Senior Appraiser and member of the American Society of Appraisers, Principal of Automotive Valuation Services based in Palm Springs (California), and renowned advisor on collection building, vehicle acquisition, and sales, with a soft spot for Italian classics from the 1950s and 1960s.
I have two thoughts. The first, optimistic, is that I don’t think that the law will be applied to classics. The risk is there, of course, but this is certainly not the intention behind it. What is more, now the issue is in the spotlight and has been extensively raised, I’m sure the government will look at it and make the necessary adjustments.
I don’t think that the law will be applied to classics. The risk is there, of course, but this is certainly not the intention behind it.Donald Osborne
My second thought is less optimistic and, in this regard in fact, I fear for the worst. If this import tax comes into effect, it will affect only a very small part of the classic car market in the USA, because most of the cars we collect are already in the USA. But it will impact heavily on people who collect European cars and import cars from Europe into the USA. We are not talking about a huge number, but they will definitely suffer. I say they, but I include myself in this category, because I love to indulge in a small Italian classic once in a while, something that, of course, I’ll be forced to stop doing.
This law will definitely have a great effect on the new car market. I’m not talking about normal production Hondas or Toyotas and so on, largely built here, but Mercedes-Benz, BMW, Porsche and Alfa Romeo models that are not manufactured in the USA.
I think that this move, even if it is approved, it will not be a long-term thing, but it will do damage that is hard to predict and have a major psychological effect, irrespective of its duration. It will hit the auction market, making American buyers weaker than before: Europeans are used to paying higher taxes and higher rates of VAT, and the Americans were benefitting from this situation. More than the money or the extra cost, the real problem will be linked to the negative psychological effect that this change will have: after all, we are all ready to pay for something we really like, because of the value it has for us personally, which is not something that can be defined. But if its price suddenly shoots up for no reason other than an externally imposed tax, most people will refuse to accept this, however much they value the item itself. For this reason, people may decide either to wait, or to spend their money in a different way. Neither scenario is great for this business.