The Trump administration has issued a stark warning, threatening to impose a 25% tariff on all imports from Canada and Mexico as early as Saturday. This move could have far-reaching consequences on the automotive industry in the United States, potentially affecting car dealerships and factories nationwide. The tariffs, if enacted, threaten to disrupt a complex supply chain that produced 10.2 million passenger vehicles in U.S. assembly plants in 2024 alone.
The significance of cross-border automotive production cannot be overlooked. Last year, Mexico manufactured 4 million vehicles, while Canada contributed 1.3 million to the industry. The majority of these vehicles, approximately 70%, found their way into U.S. showrooms. This integration underscores the potential disruption tariffs could cause, not just for manufacturers but also for consumers who could face increased prices.
The United States' automotive trade with Canada further illustrates the intertwined nature of North American car production. In the first eleven months of 2024, the U.S. exported $13.8 billion worth of cars and $26.5 billion worth of parts to Canada. Such trade flows highlight the potential economic impact that tariffs could impose on both countries' automotive sectors.
Automakers currently maintain varying levels of vehicle supply at U.S. dealerships, ranging from a 25-day supply for Toyota Motor to a 73-day supply for Ford Motor. The imposition of tariffs could prompt immediate reactions from car factories, potentially leading to reduced production or even shutdowns. Michael Robinet, an industry expert, emphasizes that the impact of these tariffs will be felt swiftly, indicating that car buyers will ultimately bear the cost through higher vehicle prices.
"American car buyers, Canadian car buyers, Mexican car buyers — that's who's paying the tariffs." – Michael Robinet
In anticipation of potential tariffs, some automakers have reportedly been stockpiling parts from Canada and Mexico to prolong tariff-free production. This strategy, however, can only provide temporary relief. The tariffs threaten to mirror market disruptions experienced during the Covid-19 pandemic, potentially leading to similar economic instability.
Ivan Drury, an automotive analyst, notes that while current car sales have been somewhat sluggish, any halt in production could quickly lead dealers to adjust pricing strategies more aggressively.
"Right now, sales have been somewhat weak. But if production does stop, it will not take many days for the dealers to be much more firm on pricing." – Ivan Drury
The volatility and unpredictability introduced by these potential tariffs are not welcomed by industry stakeholders. Erin Keating, an industry observer, expresses skepticism about the industry's ability to tolerate such measures for an extended period.
"I don't see the industry tolerating it for very long." – Erin Keating
Despite the looming uncertainty, some industry representatives remain tight-lipped on the issue. Mark Giles has declined to comment on what he describes as speculation.
"We aren't going to comment on speculation." – Mark Giles
