Canadian auto parts manufacturers have been facing down the long-lasting effects of tariffs. Leaders from industry come away with a sense of hope as well as looming fears. Linamar’s Linda Hasenfratz, executive vice-chair, pointed out the massive economic cost tariffs impose on automaker customers. This new burden amounts to billions of dollars. She allayed stakeholder concern that these headwinds will have a significant impact on Linamar’s bottom line.
In the second quarter, Linamar posted net earnings of $126.9 million powered by sales of $2.6 billion. Hasenfratz reiterated the competitive advantages of making products close to where they are sold. He added that producing in areas such as Europe or Asia and then shipping to the U.S. would incur expensive tariffs.
So despite the hundreds of tariffs imposed over the last several months, Linamar is doing great. Meanwhile, the long-term impact on the company’s bottom line is negligible. We do a lot of good — a lot — in pockets, but not at a material scale,” she said.
Good news finally arrived for manufacturers with the enactment of the United States-Mexico-Canada Agreement (USMCA). Hasenfratz specifically noted that USMCA-compliant auto parts will be exempt from Section 232 auto tariffs. This single exemption is incredibly important for Linamar and the whole industry.
These Canadian and Mexican-made products meet USMCA rules of origin for nearly all that we export to the U.S. What it means is that our clients do not have to pay tariffs on mobility products, she added.
Martinrea is one of Canada’s largest auto parts companies. Even with a 30% plunge in profit for the second quarter, the company is confident on its long-term outlook. Company’s executive chairman, Robert Wildeboer, expects next year to be “fairly solid” for the industry. Martinrea expects to achieve annual sales of $4.8 billion to $5.1 billion. They project free cash flow to be in the range of $125 million to $175 million.
Wildeboer offered a light-hearted take on the tariff situation, stating, “The tariff bite has not been nearly as bad as the tariff bark.” This sentiment is typical of the wider industry view that, yes, tariffs are bad, but they’re not all that bad.
Yet more troubling, Hasenfratz warned of the long-term effects of increasing vehicle costs due to tariffs. And the cost to our customers, as we’ve demonstrated, are in the billions. I’m a bit worried about what vehicle pricing—and thus demand—might mean in the longer term,” she added.
These complexities of tariff impacts are evident not only with Linamar and Martinrea. As a result, other manufacturers face tariffs on certain products that are imported from tier-two suppliers. They too are caught in the crossfire of tariffs on steel and aluminum. Hasenfratz pointed out that Linamar’s footprint in the U.S. is hard to find. With just 10 of its 75 worldwide facilities located in the U.S., this allows them to reduce the effects of potential tariff fallout.
Hasenfratz pointed out that our U.S. footprint is fairly modest with only 10 of our 75 plants in the U.S. That’s why tariffs on any of these imported products won’t have much of an effect on our business performance overall.
