US auto industry stunned by tariffs meant to save it

The manufacturing process at Ford and GM relied on a complex back-and-forth between the US, Mexico, and Canada. (EPA Images pic)DETROIT: The 25% tariffs on automobiles announced by President Donald Trump are meant to revitalise American industry, but Detroit’s giants were stunned Thursday by their scale and faced a beating on Wall Street.While the implementation of the tariffs had been anticipated for weeks, their details surprised manufacturers and experts as the levies will not only apply to imports of finished vehicles but parts as well.That will be particularly painful because the sector relies on a complex global supply chain, sometimes involving multiple border crossings, with assembly in one country of parts manufactured in others.The levies kick in April 3, according to the decree signed by the Republican president on Wednesday.The manufacturing process at Ford and General Motors depends largely on a highly complex back-and-forth between the US, Mexico, and Canada – the three countries linked by the USMCA, a free trade agreement signed by Trump during his first term.However, Trump’s decree doesn’t provide exemptions for imports under USMCA, dashing industry hopes that car parts would be spared.The tariffs include “crucial parts” – engines, transmissions, powertrains, and electrical components are on the list that could be expanded.Parts not originally manufactured in the US will face 25% tariffs just like finished foreign vehicles.The White House noted that of the 16 million new vehicles sold in the US last year, half were assembled in the country but contained only 40-50% American-made components.It also said the trade deficit for automotive parts was US$93.5 billion.Manufacturers faced a drubbing in the stock market Thursday.General Motors plummeted 7.3%, while Ford closed down 3.8% and Stellantis 1.2%.US listed shares of Toyota and Honda fell by 2.8% and 2.7%, respectively.According to JPMorgan analysts, 82% of vehicles sold by Ford are produced in the US, ahead of Stellantis (71%), Honda (68%), Toyota (57%), and General Motors (53%).Trump’s decree demands that manufacturers determine the percentage between US parts and foreign parts in components or finished vehicles entering the US, with the 25% tariff imposed only on foreign-made parts.This presents a real challenge for manufacturers – who will be penalised for incorrect allocations – but also for the authorities to track them.An implementation delay has therefore been granted, allowing the Commerce Department time to figure out how to proceed.According to JPMorgan, once tariffs are collected across the entire intended scope, they would generate US$82 billion annually.Trump claimed Wednesday that they would bring in “more than US$100 billion.”JPMorgan estimated that the largest tariff bill would be paid by GM (US$13 billion) while Ford should pay around US$4.5 billion.Experts have no doubt that there will be a price increase for new vehicles in the US, which will subsequently affect a weakened used car market as owners keep their vehicles longer.The president’s goal is to increase manufacturing in the US, but relocating factories or reconfiguring a supply chain cannot happen overnight.Foreign nations have also threatened retaliatory measures which could further impact the sector.In the meantime, manufacturers will have to decide between fully passing on the additional cost to the end consumer, cutting into their margins, or a mix of both.The cost of an affected new vehicle could increase by 9-12 percent, or US$4,000 to US$5,300, JPMorgan anticipates.“With added cost pressures, automakers may pull back on incentives, which could make it more difficult for some consumers to find affordable options,” said Jessica Caldwell from Edmunds.According to Caldwell, insurance premiums should also increase due to inflation in spare parts costs.

MatchPoint Times

US auto industry stunned by tariffs meant to save it

Detroit automakers on edge as looming 25% tariffs could drive up costs on crucial foreign-made parts.

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