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.

---

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 ..

 

[Packard]

Well, SAAB was never in the "economy" business to begin.

My father bought a new 1960 SAAB in 1960. It had a 2 cycle engine and he had to add oil to the gas. The sticker price was about $1900.00. He was proud of the fact that he negotiated a discount and paid about $1600.00–which was almost the exact price that the 2 door VW Beetles sold for. Neither had air conditioning. And neither was available with an automatic transmission. So, economy cars, both.

So I would say that the 1960 SAAB (the car I learned to drive on) was an economy car.

In 1963 dad bought a SAAB GT, which came with Pirelli tires, 4-wheel disc brakes, a Nandi wood steering wheel, and (most important of all) automatically dispensed the oil into the gas as long as the oil reservoir had oil. That car cost more. AC was still not available and neither was an automatic transmission. It was the car that garnered all the rally victories for SAAB.

In my call, an “economy car with performance options”.

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 ..

As for the “end game”, it seems that Trump keeps changing that as he goes along. Historically, he has been a deal-maker. Everything he does seems to be transactional. “If I do this for you, what will you do in exchange for me”. In the case of the Presidency, “If the USA does this for your country, what will you do for the USA?”

I had a friend who was similarly transactional. If I did him a favor, he felt he had to buy me lunch or dinner. And if he helped me, he expected something in exchange. That is an “asterisk-friendship” and not to be valued as much as the genuine thing.

 

[mino]

My father bought a new 1960 SAAB in 1960. It had a 2 cycle engine and he had to add oil to the gas. The sticker price was about $1900.00. He was proud of the fact that he negotiated a discount and paid about $1600.00–which was almost the exact price that the 2 door VW Beetles sold for. Neither had air conditioning. And neither was available with an automatic transmission. So, economy cars, both.
...

This is OT, but there clearly was a very substantial definition difference of what is "an economy car" in Europe and the States of the period.

In Europe, an "economy car" was a car designed and manufactured to be cheap. It was not a car that lacked luxury features of the time like air-conditioning or (what for ?) automatic transmission. Both the SAAB 93 and 96 were compact family cars and were made as-good-as-SAAB-can-make-them. IMO the choice of a 3-cylinder two-stroke was a genius lateral move for such a car - providing the running smoothness of a 6-cylinder at the weight of a 4-cylinder 4-stroke.

In the European context, a Citroen 2CV was an economy car. The original VW was one. The small Fiats were. But. A Fiat 124 was not an economy car in the European context. And the SAAB competed against that.


All that said, compared to the true road cruisers of the time made in the States, I guess ANY European car must have seemed like an "economy car". I think the comment that in 1960 America a car without air conditioning was seen as an "economy car" underlines the vast cultural and economy differences between post-war Europe and US like anything can. Thanks for that reminder.

EDIT: removed trade stuff

 

[semenza]

Edging closer to going political a couple posts up. Let's not .................................

Seth

 

[onocoffee]

It was just a few weekends ago that I was up in the Philly area visiting Nakashima and went to a local dealer who told me (it was Friday, April 11th) that he had just received word from Lamello that the tariffs were resulting in an increase in price for Monday (April 14th). And on Monday, the P2 went from $1600 to $1875 - a 17% price increase.

Evidently, the word is that Festool had prepositioned 4 months worth of inventory prior to the tariffs. So, the speculation is that we probably will not see tariff-related price increases until maybe August (I'm guessing at the latest).

I think the takeaway is that if you have been thinking about tool purchases, it will serve you better to purchase those tools sooner rather than later.

For me, it's a question of: How Desperately Do I Need That Kapex? (not really).