President Donald Trump just declared auto tariffs would stay in place for the next four years of his current term. He feels confident that this decision will entice automakers to move their EV production and supply chains to factories here in America. The tariffs are seen as a strategic element in the ongoing negotiations of the USMCA North American free trade agreement. As we previously reported, industry leaders have told us that the potential upheaval and increased costs resulting from these tariffs are anything but trivial.
Ford CEO Jim Farley described the situation as “a lot of cost and a lot of chaos,” echoing the sentiments of many automakers who foresee significant disruptions. These Anderson Economic Group estimates show the new tariffs would increase costs from $3,500 to $12,000 per vehicle. General Motors and Ford have both lost more than $1 billion per year. These losses are a direct result of increased commodity costs associated with the Canadian steel and aluminum tariffs that were enacted in 2018.
Rising Costs and Economic Impact
Phil Gibbs, a steel analyst for KeyBanc, has recently disclosed that American steel prices have exploded — up more than 30% in recent months. At the same time, aluminum prices have risen sharply as well, up roughly 15%. These increases further complicate the financial equation for automakers. Secondly, as we have noted, they really rely on Canadian and Mexican imports for parts and raw materials. The Canadian and Mexican tariffs can be expected to cause the requisite serious harm. Together, these countries account for a majority of the components that feed into U.S. car assembly.
“Let’s be real honest: 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
Fifth, the tariffs will raise prices throughout production for parts and raw materials including steel, aluminum and copper. This rapid escalation in expenses will only serve to further squeeze automaker bottom lines. During GM’s recent earnings call, GM CFO Paul Jacobson underscored just how multi-faceted these challenges are. He pointed to the challenge of trying to plan for an unknown future.
“If they become permanent, then there’s a whole bunch of different things that you have to think about, in terms of where do you allocate plants, do you move plants, etc.” – Paul Jacobson
Federal Assistance and Plant Developments
While the tariffs pose significant challenges, some automakers are benefiting from federal assistance under the Inflation Reduction Act—a green energy bill passed during the Biden administration. This help is not just covering the creation of new auto and parts plants already announced and under construction.
Now Stellantis is bringing back a recently closed plant in Belvidere, Illinois. This action is included in an agreement to end the 2023 United Auto Workers strike. The plant is expected to come back online no sooner than 2027. In the meantime, Honda recently ground broke on a new facility in Indiana. Since that announcement, the company hasn’t provided a single shred of evidence that they’ll build anything there.
“A lot of companies are going to be in great shape because they’ve already built their plants, but their plants are under utilized.” – Trump
Trump’s vision for future growth seems to involve a more regressive executive order — one to expand the automobile industry. He noted that existing plants could be expanded quickly and inexpensively while new factories are being planned by companies seeking sites across the country.
“So they’ll be able to expand them inexpensively and quickly. Others will come into our country and build and they’re already looking for sites.” – Trump
Long-Term Industry Prospects
While today, tariff-related market uncertainty weighs heavily, those in the industry remain optimistic about growth and expansion in sectors such as automotive and infrastructure. In August, an auto industry executive told us that there are record numbers of new plants being set up. This trend represents an encouraging trend for sustained growth over the long term.
“We’re already setting records for new plants.” – Auto industry executive
As General Motors executives warned at the same conference, shifting supply chains and developing new suppliers takes time and investment. The inconsistent nature of tariff policies only adds to these challenges and strengthens the case for careful planning and strategy.
“These are questions we asked throughout the supply chain crisis, and it does take time and investment of funds to be able to … bring new suppliers on board.” – General Motors executive
