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Yahoo
04-03-2025
- Automotive
- Yahoo
Tariffs May Cut a Third of North American Auto Production Next Week
President Trump pulled the trigger on a 25% tariff for products coming in from Canada and Mexico, plus 10% added to Chinese imports for a 20% total tariff. The popular Toyota RAV4 stands out. Much of its North American production comes from Canada and it's unlikely Toyota will find space in its US assembly plants to replace that production. Tariffs on Canada, Mexico, and China have a 20% probability of lasting six to eight weeks, which would overlap into Trump's promised tariffs on Europe, Japan, and South Korea. No matter if Canada and Mexico work something out with the Trump administration in the next two weeks, auto prices will go up, incentives will quickly disappear even on mostly US produced models, and auto production will decrease by as much as 20,000 units a day, says Stephanie Brinley, associate director at S&P Global. That production cut, which would be nearly a third of car and truck output in the US, Canada, and Mexico, could begin as early as next week, Brinley says in the Automotive Press Association's Real-Time Auto Intelligence webinar Tuesday. The presentation came about 12 hours after President Trump pulled the trigger on a 25% tariff for products coming in from Canada and Mexico, plus 10% added to Chinese imports for a 20% total tariff. Current production for North America is about 63,900 vehicles a day, with 41,700 in the US, 17,600 in Mexico, and 4,600 in Canada. 'Margins are going to take a hit here,' Brinley says of the auto industry and its suppliers. Volkswagen in particular is exposed to tariffs on Mexico, Brinley says. Anticipated tariffs on European imports by April 2 also will hit the German automaker, she says, but not by as much as the Mexican tariffs. The popular Toyota RAV4 stands out, as much of its North American production comes from Canada and it's unlikely Toyota will find enough space in its US assembly plants to replace that production. The RAV4 is a bestseller in the US after the Ford F-Series and Chevrolet Silverado, and so it's quite vulnerable. 'It's entirely feasible production of some models will be paused,' Brinley says. Bottom line is if you have been contemplating a new car or truck, get yourself to a dealership right now. Some vehicle stockpiling began in January, but 'inventory currently not tariffed is golden,' Brinley says. Dealers may introduce premiums to optimize inventory even in the short-term. Of 25 automakers selling and producing vehicles in North America, 11 have assembly plants in Mexico and five have plants in Canada, according to S&P Global. On top of Tuesday's tariffs, most every automaker uses parts and supplies that cross either border, often several times back-and-forth before final assembly. As for the 25% steel and aluminum tariffs the Trump White House imposed in February, most steel used in US production comes from inside the US, Brinley says. S&P Global projects a 70% probability that tariffs on Canada and Mexico will last just two weeks. But any hot upcoming model you've anticipated almost certainly will arrive late. 'We're already seeing programs delayed,' Brinley says. Automakers have been slowing or stopping new model development by two to three months as the industry adjusts and automakers try to figure out how to optimize strategies for where to build those new models. Tariffs on Canada, Mexico, and China have a 20% probability of lasting six to eight weeks, which would overlap into Trump's promised tariffs on Europe, Japan, and South Korea. There is a 10% chance of a 'Tariff Winter,' permanent tariffs that could cut projected calendar 2025 US sales by 10%, according to S&P Global. Trump has signaled he wants early renegotiation of the US-Mexico-Canada trade agreement he first negotiated in 2017, possibly by the end of this year and maybe beginning this summer. Last December S&P projected US sales for 2025 of 16.3 million vehicles, Brinley says, which is a million-plus units short of the record sales years of a decade ago. A 10% drop would lower that projection to about 14.7 million vehicles, below the 15.5 million for the pandemic-recovery year of 2023. But from there, it's not far to the pandemic ravaged year of 2022, when demand far exceeded supply and just 13.7 million vehicles were sold. S&P worked in the possibility of new tariffs in its 2025 sales projection last December, and the 10% decline is preliminary, Brinley says; the decrease in sales could be greater as more variables come into focus. Even with lower demand, a repeat of pandemic-era supply will lead to higher prices for new vehicle purchases and leases, as well as for used vehicle prices. Though Brinley would not commit to any sort of dollar-amount prediction, we're going to go out on a limb and predict that in the coming weeks average transaction prices, which finished 2024 at $49,740 according to Kelley Blue Book, will easily top $50,000 within a matter of weeks. The Tariff Winter scenario poses another dilemma for automakers doing business in the US: What to do in the long term? It could easily take as long, or longer, for an automaker to build the new factories in the US that President Trump wants than it will take for us to wait for the 2028 presidential elections. Are tariff concerns forcing you to dealer showrooms sooner than you had planned? Please comment below.
Yahoo
26-02-2025
- Automotive
- Yahoo
Tariffs Will Cut US Auto Production and Lead to Layoffs, AEG Says
President Trump says tariffs will force manufacturers to build new factories in the US and hire more American workers, but economic analyst firm AEG says it will tack on thousands of dollars per vehicle and lead to layoffs. On the low end, AEG estimates the tariffs could tack on $4,000 to the price of a new vehicle. Several experts are saying of the tariff plans that 'they're not very well thought out,' and some will lead to 'a lot of cost and a lot of chaos.' President Trump's tariffs will add as much as $12,000 per vehicle and lead to a cut in production greater than from the fall 2023 United Auto Worker strike against General Motors, Ford, and Stellantis, according to consulting firm Anderson Economics Group (AEG). While the president says his tariffs will force manufacturers to build new factories in the US and hire more American workers, cuts in auto production could mean significant industry layoffs. 'We think if you were to do something, anything close to the tariffs that we're talking about,' even at half the levels floated by the Trump White House, 'you're going to see a decline in domestic auto production,' AEG principal and CEO Patrick Anderson told the Automotive Press Association in its Real-Time Auto Intelligence webinar last Friday. AEG's estimated price increases include calculations for parts and components that cross US-Mexican or US-Canadian borders, often several times before final assembly, Anderson said. On top of these impending tariffs, Trump says he will announce on April 2 a 25% tariff on auto imports, semiconductors, and pharmaceuticals. On Monday Trump said the US is on schedule for tariffs in March on its US-Mexico-Canada (USMCA) trade partners, The Associated Press reports. Trump has said he will introduce tariffs on other trade partners on April 2. 'We're on time with the tariffs, and it seems like that's moving along rapidly,' Trump said. But Mexican President Claudia Sheinbaum said she was confident of reaching an agreement with the US before that deadline, the AP reports. If the chaotic nature of the tariffs Trump has proposed, so far, has boosted any business, it's that of the consultancy and analytic firms and law firms as they try to sort through the 'America First' trade policy, issued by the White House on January 27. 'We've been seeing with these announcements, they're not very well thought out,' says Greg Husisian, chairman for international trade and national security practice for the international law firm, Foley & Lardner. 'Right now, it would be virtually impossible for the auto sector to be risk-planning for the next 10 days.' AEG's Anderson evoked the words of Ford CEO Jim Farley, who on February 11 told an investor conference, 'what we're seeing is a lot of cost and a lot of chaos.' The Trump administration has clear statutory authority for proposed reciprocal tariffs and for Trade Expansion Act Section 232, which includes a proclamation for steel and aluminum, Anderson said. There also is authority for the White House to renegotiate the US-Mexico-Canada (USMCA) trade agreement signed during the first Trump administration, as it contains a provision for renegotiation in 2026, though the negotiations have already begun with Trump's January 20 executive order. A fourth EO signed February 1, the Emergency Powers Act, lacks clear statutory authority, Anderson said. AEG selected North American-assembled models from GM, Ford, Chrysler, Toyota, Honda, Kia, BMW, Audi, and Tesla, and European- or Asian-assembled models from Jaguar Land Rover, Mercedes-Benz, Audi, and Toyota to calculate the cost of a 25% tariff on Canadian and Mexican goods, and a 10% tariff on Chinese goods, including parts and supplies. The firm assumes these automakers will make a 'strong effort to substitute and adjust production,' meaning that they would try to move as much sourcing and final assembly to US plants as possible. Lowest tariff hit of the models studied would be about $4,000. First example was a full-size SUV with 'some Mexican content,' which would be tariffed at $9,000 above its sticker price. Next was a battery electric vehicle, which would cost $12,000 more. BEVs would take the biggest hit because they require more aluminum and steel content to handle the weight of the battery packs, Anderson said. 'Long term, a 25% tariff across the Mexico and Canada borders would blow a hole in the US industry that we've never seen,' Ford's Farley told the investor conference, as reported by the Detroit Free Press. 'Frankly, it gives free rein to South Korean, Japanese, and European companies that are bringing 1.5 million to 2 million vehicles into the US that wouldn't be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever.' Tariffs on US-produced vehicles entering Japan or South Korea are very low, according to Foley & Lardner's Hisisian. Most European markets charge a tariff in the 10% range, while the US charges about 2½% for European imports, he said. But South Korean, Japanese, and European automakers already bank on a lot of North American production that would be subject to the Mexican and Canadian tariffs, just like Ford and GM and Stellantis' Chrysler. Hyundai CEO José Muñoz told Axios in January that 'the best way for us to navigate tariffs is to increase localization.' Even with capacity for 700,000 Hyundai and Kia models from its 20-year-old Alabama assembly plant, about 40% of Hyundais sold in the US last year came from that factory. Hyundai in 2024 also opened its new Metaplant in Savannah, Georgia. Capacity is for 300,000 Hyundai, Kia and Genesis EVs, and the company says its working to add hybrid production there, to boost US production share well above 40%. Meanwhile, affiliate Hyundai Steel is looking at building a plant in the US, according to Reuters. But like captive imports from Japan and Germany, and even the Detroit Three, Hyundai has a long way to go before it can escape tariffs altogether. Trump is risking comparison with President Herbert Hoover with his tariffs, Hisisian says; 'These are like Smoot-Hawley type tariffs.' Smoot-Hawley, imposed in June 1930, a time when imports into the US were much, much smaller than today, in case you've forgotten your Econ 101 (or the cameo appearance by conservative economist Ben Stein in Ferris Bueller's Day Off), is blamed for expanding and extending The Great Depression.
