Tariffs and the Price of Tools

[onocoffee]

Speaking of gas prices - when I started doing work in Saudi Arabia in the Fall of 2018, gas there was still $0.29/gallon. It's gone up quite a bit since those days but now is around $2.30 - which is nearly a dollar cheaper than where I live.

 

[HowardH]

I am doubtful that manufacturers will pass along all of the cost of the tariffs.

On Monday I went to the local factory Sketchers Shoe store based on two factors:

1. I was going to need a new pair of shoes fairly soon.

And…

2. I read that nearly 100% of all footwear was made or assembled in China, Viet Nam or Mexico, with a smattering in other Asian countries, all, or most of which were going to be hit with tariffs.

I figured that buying now would would save me money.

When I got there they were holding a sale: Buy 2 pair and the second pair is at half price.

All of which means that if they get hit with a 10% tariff, they could choose to pass along all of that cost, some of that cost, or none of that cost.

Some other items, like automobiles, operate at much tighter margins and will likely pass along most or all of that cost.

But some items that are rarely discounted, like Festool, will have generous profit margins, will consider the market implications of passing along the tariffs.

I suspect that some vendor will advertise, “Buy now, and we will pay the tariff on your purchase.” (Which might sound more generous than it is.)

A $1,000.00 retail purchase will likely have a dealer cost of $500.00, and a tariff of $50.00.

“Originally sold for $999.00, now just $949.00. (Yes, we will pay the tariff so you don’t have to.”)

In the (I believe the President Reagan years) there was an added tariff of 10% on imported tires that had to be shown as a line item on invoices. So when you bought an imported tire from a dealer you knew exactly what they paid for it. It made negotiations for better pricing easier.

That phenomenon will be the wrench in the works.

But in any case, I don’t believe that all the cost of the tariffs will be passed along to the consumers.

wishful thinking. Just saying,

 

[Packard]

wishful thinking. Just saying,

I think that the premium tool manufacturers (read “Festool”, “Snap-on”, et al) will absorb a portion of the increase in an effort to not alienate their customer base. Then they will (slowly) increase prices to return to their earlier business model.

The bottom feeders (read “Harbor Freight”, “Alibaba”, et al) will have to pass along increases as soon as their older inventory is sold. They will not be able to absorb much or any of the tariffs.

I have noticed that Harbor Freight, over the last year or so, has been trying to reposition themselves to directly compete with DeWalt, Milwaukee, etc. with, what appears to be, higher quality power tools. It is a tough transition to make, however.

In my memory, only one company successfully transitioned from economy to premium, and that would be SAAB.

One year, they were competing with VW Beetles, and the next year (with mechanically identical cars) were competing with BMWs. I found that move rather exceptional. But the recession took its toll on them in the long run.

 

[mino]

I think that the premium tool manufacturers (read “Festool”, “Snap-on”, et al) will absorb a portion of the increase in an effort to not alienate their customer base. Then they will (slowly) increase prices to return to their earlier business model.

The bottom feeders (read “Harbor Freight”, “Alibaba”, et al) will have to pass along increases as soon as their older inventory is sold. They will not be able to absorb much or any of the tariffs.

I have noticed that Harbor Freight, over the last year or so, has been trying to reposition themselves to directly compete with DeWalt, Milwaukee, etc. with, what appears to be, higher quality power tools. It is a tough transition to make, however.

In my memory, only one company successfully transitioned from economy to premium, and that would be SAAB.

One year, they were competing with VW Beetles, and the next year (with mechanically identical cars) were competing with BMWs. I found that move rather exceptional. But the recession took its toll on them in the long run.

Well, SAAB was never in the "economy" business to begin.
May have been the case in the US for marketing/sales reasons, but they were always a mid-market player in context of Sweden and mostly a higher-end one in the wider European context. For one, "Swedish Steel" was a well-earned name in times sheet plating was not ubiquitous.

What "did them" was they never consolidated - hence they never got the low-end volume needed to survive post 1990s when the R&D costs went through the roof. Same with Volvo and pretty much any medium-size independent maker. They got either gobbled up or went bust.

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Agree on the expected outcome.

IMO it is important to understand that the "end-game" with regards to EU-US trade may well be a reduction in tariffs, not an increase. In this pairing, it is the EU that need to keep or even raise disparate tariffs to protect its industry from the effects of its "green" policies while the US wants to force minimal tariffs with the EU to leverage its upcoming competitive advantage in lower energy costs ..