Analysts expect Stellantis, the owner of General Motors, Ford and Chrysler, to be among the automakers most affected by Donald Trump’s pledge to impose tariffs on imports from Mexico and Canada, according to what the Financial Times quoted them as saying.
The threat to America’s three largest automakers comes from the complex cross-border supply chains that the global auto industry has developed over the past four decades.
Since Trump recently announced plans to impose 25% tariffs on imports from Mexico and Canada, executives and analysts have been trying to figure out the potential damage to an industry already facing weak demand for electric vehicles.
The British newspaper quoted Barclays analyst Dan Levy as saying: “It is generally understood that imposing comprehensive customs duties of 25% on any vehicles or content from Mexico or Canada could be devastating, but investors did not appreciate the extent of the damage this might cause.” .
most affected
According to the Financial Times, Mexico and Canada are two of the most important manufacturing hubs for US auto vendors, meaning most of the world’s major manufacturers are vulnerable to the impact of tariffs.
According to Bernstein analyst Daniel Roesca, about 40% of the cars and trucks that Stellantis sells in the United States are imported from Mexico or Canada.
According to the Financial Times, unless companies take steps to mitigate the impact of tariffs, Barclays estimates that the profits of the three automakers based in Detroit (Michigan, a center for the auto industry) may be wiped out by the tariffs.
Among European automakers, Volkswagen is the most affected, as 45% of its sales in the United States come from cars made in Mexico and Canada, even though the American market represents a small share of the group’s total revenues.
Japan’s Nissan and Honda manufacture large numbers of cars in Mexico for export to the United States.
Possible consequences
While tariffs on vehicles exported to the United States would be painful for the industry, analysts say the biggest risk would be if the Trump administration also imposed tariffs on auto parts sent from Mexico and Canada.
BNP Paribas analyst James Picariello said that tariffs on parts made in Mexico would be devastating, adding: “I don’t think it is economically feasible… Ultimately, the cost of tariffs should fall on the consumer.”
Cars assembled in the United States rely heavily on parts from Canada and Mexico, and according to disclosures from the US National Highway Traffic Safety Administration, only 68 of 141 models registered as being assembled in the United States have engines and transmissions made in the country.
Figures from the regulator also show that for 42 of the models, parts from Mexico accounted for more than 15% of the total value of components in the vehicles.
Customs declarations from Mexico show the range of parts the country supplies to the US market, and about 35,000 declarations covering shipments of auto parts worth $700 million were filed in the last week of August, the most recent period for which data is available.
The advertisements, compiled by the data company Export Genius, reveal that purchases by American manufacturers included steering systems, parts that go into electric car charging ports, and armrests.
A separate set of value-added data, compiled by the OECD, shows that parts from Mexico and Canada accounted for about 10% of the value of cars assembled in the United States in 2020, with components from China making up 5.4%.
Auto industry executives say Trump’s plans may also force the industry to rethink its supply chains in other ways.
President Joe Biden’s administration raised tariffs on Chinese imports this year, including a 100% tax on Chinese electric vehicles, even though these vehicles represented only 1% of the US electric vehicle market last year.
A ban on Chinese software would force Western and other Asian automakers to find new suppliers for the technologies, a major challenge given the progress Chinese companies have made.
Damage mitigation
Automakers can boost American production and absorb the financial hit by cutting costs or raising prices.
The Detroit Three (General Motors, Ford, and Chrysler) have enough spare capacity in the United States to shift production from Mexico and Canada. However, this will be a more costly and time-consuming exercise for European competitors.
Volkswagen may be able to shift some manufacturing to its new electric vehicle factory in South Carolina, where its Scout vehicles are expected to be made. In contrast, BMW and Mercedes-Benz have little spare capacity at their factories in the United States. United.
An executive at a European automaker said that car companies know how to cut costs and have an amazing ability to avoid collapse.
The CEO of British car manufacturer McLaren said: “I think we are more flexible,” adding that “it is clear that protectionism and tariffs are not good for the economy at all.”
