Soda, Motorcycle Prices Rise as Tariffs Hit Home for Consumers
U.S. manufacturers are charging more to cope with rising steel, aluminum costs
Coca-Cola said it was raising soda prices midyear in North America because of rising costs, including freight rates as well as prices for plastic and aluminum. PHOTO: MATT ROURKE/ASSOCIATED PRESS
Consumers are starting to see higher prices for recreational vehicles, soda, beer and other goods that now cost more to make as a result of recent tariffs on metals and parts.
When costs rise, manufacturers generally must chose whether to absorb bigger bills for aluminum, steel and imported components, or pass the increases along to customers. Many manufacturers in recent days, including Coca-Cola Co. and Polaris Industries Inc., have said they plan to raise prices.
U.S. steel and aluminum prices are up 33% and 11%, respectively, since the start of the year, as producers and their customers begin to price in the tariffs that the Trump administration first applied on foreign-made metal in March. Tariffs on a host of additional imported products from China this month have added costs for companies that use those components to assemble their products in the U.S.
“We’ve had to go to the market a bit more frequently and a bit more aggressively with some price increases as of late,” said Michael Happe, chief executive of recreational-vehicle manufacturer Winnebago Industries Inc. Winnebago wouldn’t say how much it has raised prices, and said it has made changes such as modifying RV floor plans to trim costs.
The Forest City, Iowa-based company has benefited from a surge in RV sales in recent years, driven by demand from younger customers, and is spending at least $25 million to expand production.
But Mr. Happe said the tariffs, broader trade tensions and rising inflation are clouding the outlook for Winnebago. “Uncertainty is never a great thing for the economy and the more noise there is there’s a risk that consumers will press pause,” he said.
U.S. manufacturers have been on a tear. Factory output is up 22% since a recession low in June 2009. Industrial stocks have climbed this month as companies including 3M Co. andHoneywell International Inc. reported higher-than-expected sales and profits. Some of those companies said tariffs were less of a concern than rising labor and shipping costs, and that they would make production changes before raising prices.
But other executives and investors fear rising costs as a result of the tariffs could sap customer demand and crimp profits.
And some companies say they believe a strong economy will support higher prices.
“We haven’t seen any pushback on the price,” Todd Bluedorn, chief executive of heating-and-cooling-systems maker Lennox International Inc., said on an investor call last week. “We’ve seen all our competitors announce similar price increases.”
Consumer prices rose 2.9% in June from a year earlier, the Labor Department said, the highest rate in more than six years. Producer prices, a measure of what businesses are paid for goods and services, have also climbed to the highest level in years. The producer-price index rose 3.4% in June from a year earlier as energy and shipping costs climbed along with metal prices.
Polaris is raising prices on its boats, motorcycles, snowmobiles and other recreational vehicles to cover $15 million of the $40 million in tariff-related costs the Minnesota-based manufacturer expects to pay for foreign-made steel, aluminum and components from China this year. Polaris is also facing retaliatory tariffs from other countries on products it exports from the U.S., including the Indian-brand motorcycles it ships to Europe.
Chief Executive Scott Wine said Polaris would accelerate plans to move production of motorcycles that it sells in Europe to Poland from Iowa to avoid rising European Union tariffs on U.S. motorcycles.
Harley-Davidson Inc. announced a similar plan in June, drawing condemnation from unions representing its U.S. workers and from President Trump. Mr. Trump said Harley was undermining its Made-In-America legacy.
Harley’s Chief Executive Matt Levatich last Tuesday said the move would keep down the cost of its motorcycles in Europe. “We made the best decision given the circumstances,” he said.
Tariff costs are starting to hit consumers at the grocery store as well. Coke on Wednesday said it was taking the unusual step of raising soda prices midyear in North America because of rising costs, including freight rates as well as prices for plastic and aluminum.
“Clearly it’s disruptive for us. It’s disruptive for our customers,” CEO James Quincey said on a call with analysts. He said he expected distributors and retailers to pass along the increases to consumers starting in the third quarter.
Executives at Sam Adams brewer Boston BeerCo. said they would raise prices up to 2% in the second half of the year. “At some point, increased commodity costs have to be passed through to some extent,” Chief Executive Jim Koch said on an earnings call Thursday.
Manufacturers have some room to increase prices as the U.S. economy continues to grow at a robust pace, driven by strong consumer spending and exports. Gross domestic product rose at a 4.1% rate in the second quarter, the Commerce Department said Friday.
Strong demand for heating and ventilation equipment is helping manufacturers in that sector recoup most of the added costs that have resulted from the steel and aluminum tariffs. Manufacturers of such equipment have succeeded before at raising prices to cover—and even profit from—higher commodity costs, said Stephen Volkmann, an analyst at Jefferies & Co.
Lennox, one manufacturer of such equipment, has raised prices to cover higher costs and plans a second round to cover the additional $50 million the Richardson, Texas, company expects to spend on steel this year. Lennox said it also expects to pay $20 million more for freight and $5 million for tariffs on components such as motors from China this year.
Office furniture maker Steelcase Inc. also raised prices in June for the second time in four months as steel prices climbed. “It’s been a long time, if ever, that we’ve done two price increases back to back as quickly as we did,” Chief Executive James P. Keane said.
—Doug Cameron
and Jennifer Maloney
contributed to this article.
and Jennifer Maloney
contributed to this article.
Appeared in the July 30, 2018, print edition as 'Sting of Tariffs Starts to Hit Home.'
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