re: So, about that tariff: Just got hit with $11K adder notice

So much ignorance in this thread.

For those saying "there is no tariff in place" and "just use american steel":




To use an example that isn't tied directly to Trump, in 2015 the Softwood Lumber Agreement between the US and Canada expired in October 2015. After the expiration there was a 12 month moratorium where Canada was able to continue shipping in to the US tariff-free.

During the moratorium, several US producers filed for trade protection with the US government, stating that Canadian Timber is heavily subsidized and gave Canadian Mills an unfair advantage and asked for both countervailing and anti-dumping duties to be levied against Canadian producers.

The US Trade Commission investigated and made a preliminary determination in favor of the petition in January of 2017.

Lumber prices from both US and Canadian producers immediately rose roughly ten percent.No percentages were discussed by the trade commission. Just a general statement that there was enough evidence for the investigation to continue.

In April of 2017, the commission levied an average countervailing duty of nearly twenty percent on Canadian lumber producers. The price of lumber from both Canadian and US producers immediately rose an additional twenty percent.

TL/DR: The possibility of a duty on Canadian lumber raised the prices on all lumber by 10% and once the actual duties were announced all lumber increased by the amount of the duties levied.

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If you’re getting an 11k hit on something that costs 400-600k, then that is a whopping 2-2.75% increase in costs in order to not outsource American jobs to an Asian slave pit. You honestly defeat yourself in your attempt to make it sound bad.

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Unlike you board-squatting armchair industrialists, I had to go make the donuts (i.e., be on a 2 hour conference call that should have only taken 10 minutes), so I apologize for my lack of response.

I will say that in reading through the 7 pages this has grown to, I am pretty flabbergasted. Let me repeat, address, summarize as follows:

- 11K hit PER MACHINE from a manufacturer that is family-run and pretty much regarded as the best machine in their segment. We speak directly to the owner and president, and the industry has huge respect for their machines, their integrity, and their sense of community and family. Those of you who say he is just screwing us have a pretty jaded sense of business relationships. Not every heavy equipment manufacturer is Cat, Deere Volvo, etc. It's a nice business to crank out 150 high-value machines a year for a niche market, and its more common than you would think if all you know is what you see when you drive by a Cat dealership.

- No, we don't sell Case, pretty much for the same reason it was snorted at a few pages back. We focus on purpose-built, non-commodity, high-value lines.

- You people who say "11K is only 2-3%" are either ignorant about how margins work or what margins are like in this business. For the sociology majors on here, a quick lesson. Gross margin is what is left after you subtract what you paid for your widget from what your GOT paid. This is what you get to pay all your other bills with, just like at home. Now, go home, and tell Mrs. Sociology that you now have 25% less money to pay those bills with. No, this is not my only product line, so it is not ALL of my gross margin at risk. This is my BIGGEST line, though, and we are still young enough that the parts and service annuity has not kicked in enough yet to be the big line item at the top of the Income Statement.

- A PROPOSED steel tariff DOES affect pricing now. For machines like this, you don't go down to Target and buy a cart full of steel. These won't even be delivered for 2-5 months, but it's not like the manufacturer is going to just wait until then and hope their steel price is still the same. They plan ahead (based on what their suppliers tell them) and give us a heads up.

- We did place an order for 12 machines, but these are for 12 different customers. They are not rental units, but gold star for whoever raised the issue. You do have some idea how this works. These are not impulse buys. It takes weeks to get a deal done sometimes. Going to them now and telling them the price is now 11K more goes over like a turd in a punch bowl, and can start the whole process over. Legally, I am not on the hook for anything right now, but I just spent 2 hours arguing with someone (not the manufacturer) over the difference between what you CAN do and what you SHOULD do.

- All you trade experts pointing out the effects of Chinese steel being dumped here must not be aware that we import like 8% of our raw steel from China.

- As for Chinese products, these are weldments, i.e., semi-finished components. At one point, I was leading a project to put together machines in China, using components sourced from Cat's suppliers in the Xuzhou area. When Cat puts a big plant in a place like this, they train and qualify local suppliers, and they get really good at it. The midsize HEX coming out of that factory had less problems than ones coming from other factories around the world making the same machine.

- There were 1 or 2 of you who actually caught the main point of the OP. I didn't think it was that hidden, but clearly some of you were more interested in telling me how bad I am at business (from your cubicle) than understanding the point. Business costs are like water. They find the low spots. If the tariffs don't include semi-finished weldments, then the company that effectively hires Chinese welders has a big advantage over the one that hires American ones, and that is before the wage issue comes into play.


I'm not Bill Gates, and I'm not Bill Caterpillar (but I did run Asia Pacific for a signficant Cat Dealer). I am, though, decent enough at this to make a pretty good living. I'm not here for a dick-measuring contest, though, and I am not fully condemning the tariffs. I am not even convinced they will actually happen (though they probably will). All I am saying is that understanding the knock-on effects is harder than parroting ideological punch lines.

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- We did place an order for 12 machines, but these are for 12 different customers. They are not rental units, but gold star for whoever raised the issue. You do have some idea how this works. These are not impulse buys. It takes weeks to get a deal done sometimes. Going to them now and telling them the price is now 11K more goes over like a turd in a punch bowl, and can start the whole process over. Legally, I am not on the hook for anything right now, but I just spent 2 hours arguing with someone (not the manufacturer) over the difference between what you CAN do and what you SHOULD do.

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This is what isn't making any sense.

You're a DEALER who supplies a product you stamp your company name on and then afford customer service for that product.

You are selling this finished product to an end-customer for approximately $440,000.

You have to purchase this product from a manufacturer.

This manufacturer is currently paying around $2,400 per ton for the steel needed to make one of these machines.

This manufacturer is incorporating an $11,000 surcharge into this to account for what he apparently believes the tariff will do to increase the cost of steel.

You said each machine uses around 50,000 lbs of steel. That's approximately $60,000 in material costs. $71,000 if we include the $11,000 surcharge.


My question is, how much is the manufacturer selling the unit to you for?

And then the biggest question is, why in the blue frick are YOU absorbing the $11,000 instead of the customer you're selling it to?


I've never heard of a retail dealer working deals like this. It makes zero sense.

So you're letting the manufacturer charge you X+$11,000 for a product, and you're turning around and selling that product for just X+10% markup?

That's retarded.

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Maybe the costs will get passed along, but we were basing it on the current costs and profit. Now you're saying he should be thankful so you can argue away those costs, because they're passed along as if he the costs aren't being eaten by someone.

But he still incurred an additional $132,000 in costs so I have no idea what kind of fantasy wealth manager math you're using.

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Because again, he's the dealer, not the end-customer or manufacturer.

If he's making 10% profit margin on $5,280,000, this means that he is purchasing the units from the manufacturer for $4,752,000, or $396,000 each.

If he's really paying $407,000 for each unit, and only selling them for $440,000, then he's not actually going for a 10% profit margin now is he?

So why say you're going for 10% profit margin if you're end result is a 7.5% profit margin?


This whole story stinks. Not buying it.

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Just keep writing this stuff, then let’s take a poll and see who the board thinks doesn’t know what he’s talking about.

One clarification: The 50,000 lbs of steel metric does not mean that this is the exact amount of steel being affected, and that’s my fault for oversimplifying. I should have known people would take that literally and twist it.

It includes a hella lot in steel fab, but also engine, hydraulic pumps and motors, tracks, transmission, cylinders, and all other kinds of components that are (yes) made of steel, but are coming from manufacturers who may or may not be affected. I am not peeling the onion that far for the sake of a dumbass on a discussion board.

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Okay, ignore the cost of steel metric.

Just answer this...

Why did you tell us you're selling it for a 10% profit if you're really only selling it for a 7.5% profit?

You're the dealer. If you want a 10% margin, then sell the shite for a 10% margin.

Don't tell us you're eating $11,000 when all you're really doing is selling it for less profit than you're claiming.

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Don't tell us you're eating $11,000 when all you're really doing is selling it for less profit than you're claiming.

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He did clarify that and said all 12 machines are pre-sold and I assume contracts are signed and down payments made. He would look like a dick to say oopps to his customer.

His supplier looks like a dick if he has already ordered them and they know he is under contract with the end user and they tack on 11k.

I'm curious if the supplier claimed that it was around 20k and,they absorbed as much as they could and had no choice but to pass this cost on to him and it would be a one time thing.

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I said that is the impression you're giving.

Whether you realize it or not, it is.

Since I have gone places and done things I'm quite familiar with how much something costs and not only how you get there but leave still wearing your shirt.

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Fair enough, but where (in this whole thread) have I said anything other than 25% of the gross margin dollars was the issue?

Makes sense. I believe that once a business knows they will get hit with price increase in future, they immediately jack price up. In this case, it shows people believe Trump will follow through. Good negotiating position.
Couple of questions.
1. Had you known it was a possibility would you have added cost to quote.
2. Will you add it in future? Therefore this is a one time hit which hopefully you make up with increased sales because more stuff is being done in US.

Hopefully the weldment issue gets figured out.