How are auto makers going to handle tariffs?

[NH_Pony_Boy]

Let us try and do a thought exercise without involving politics.
Just an addressing of the facts.
The 25% tariffs on Mexico and Canada are going in effect on March 4th.
The Mach-E is built in Mexico so I assume that makes the whole vehicle subject to a 25% price increase.
Even cars built in the US have parts from both countries which would increase the price considerably.
If you have a car ordered from the factory, and it hasn't crossed the border yet, I think it is possible that Ford will not deliver that car as they cannot swallow the 25% price increase.
Is it possible the car makers will just not build new cars until the tariffs are rescinded?
That seems unlikely but it might be cheaper to shut down factories rather than build cars that you cannot sell because they are 25% more expensive than a Toyota.
What happens to the economy if the American automakers stop production and layoff tens of thousands of workers?
Seems like there is no good outlook on this.
On the upside this will increase the value of our used cars (but replacing it will be more expensive unless you buyJapanese).

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[Blue highway]

The tariffs will ultimately be paid by the end consumer. Unless there are similar tariffs for importing a car from Korea, Japan, Europe etc. it is a huge headwind for the US auto industry as a high percentage of high value items in most US "made" cars come from Canada and or Mexico.

individual cars vary a lot, but overall the percentage of US content by brand is likely less than you might imagine.

https://kogod.american.edu/autoindex/2024

Brand	2015	2024
FCA/Stellantis	60	46
Ford	65	54
GM	66	54
Honda	50	63
Hyundai/Kia	17.5	17
Nissan	22	24
Tesla	77	81
Toyota	27.5	29
VW	8.2	35

 

[CarlSagan82]

Who cares. Musk and Doge were able to cancel a few hundred unused photoshop and Microsoft office subscriptions in their latest update. We are getting our deficit under control! ?

This is really such a depressing timeline. It’s impossible even for the most intelligent in economics to predict. Trump is so erratic with his moves you never know or can trust what he will do next. Surely can’t take him at his word. So it breathes uncertainty into the ENTIRE MARKET and none of the players are exempt including Ford.

 

[geeklifer]

The tariffs will ultimately be paid by the end consumer. Unless there are similar tariffs for importing a car from Korea, Japan, Europe etc. it is a huge headwind for the US auto industry as a high percentage of high value items in most US "made" cars come from Canada and or Mexico.

individual cars vary a lot, but overall the percentage of US content by brand is likely less than you might imagine.

https://kogod.american.edu/autoindex/2024

Brand	2015	2024
FCA/Stellantis	60	46
Ford	65	54
GM	66	54
Honda	50	63
Hyundai/Kia	17.5	17
Nissan	22	24
Tesla	77	81
Toyota	27.5	29
VW	8.2	35

That is what most people don't understand. The world has changed. So many industries are truly interconnected with suppliers and materials from all around the world. There are very few companies where everything they move started and ended within their own country.

The companies can't just stop everything and wait to see what happens. They will continue to do what they have been doing, but at a much higher cost, which will absolutely end up meaning a higher cost for consumers.

I'm not sure how that would impact an order currently waiting on a car. I guess that would depend on the specific wording in the agreement.

 

[davegram]

From everything I've been reading, we simply don't know yet. The devil is in the details. Will tariffs go into effect immediately? Will they be threatened, put into place for two days, then lifted? Will there be an exception for American car companies building things in Mexico and Canada? Will there be a grace period for Ford, GM, and Stellantis if they promise to move as many factories as possible to the US within a certain time frame? I'm sure there are lots and lots of companies and lobbyists making their case for different parameters to any tariffs. Ultimately it's a lot of uncertainty.

 

[E90alex]

Most Japanese brand cars sold here are built in the US or Canada as well. But in today age of modern globalization all cars have parts from all over the world regardless of where they are assembled.

These tariffs will only hurt the US consumer and economy.

 

[Mosworthy]

As far as I know there are several makers where the parts or even the whole vehicle crosses the border more than once in the process....
The tariff is applied every time it goes into the US.

Its a baffling situation, and with the endgame being unclear, us Canucks are just watching and waiting

 

[Snakebitten]

Let us try and do a thought exercise without involving politics.

You can't be serious. ???

These are EV owners. For many, EV's are political.

 

[geeklifer]

You can't be serious. ???

These are EV owners. For many, EV's are political.

It really shouldn't be, but yeah, EVs are somehow a political thing.

 

[Snakebitten]

I own an EV because of the rate it consumes tires. ?

 

[jkovacs]

Was discussing this the other day and my take on it is that new car prices are going to jump, followed by increases in used car prices as inventory dwindles (since people will hold onto their cars longer) and demand increases (people who need a car but can’t afford a new car). This is similar to what we saw post-COVID when supply chains were disrupted.

Over the medium term, I think we’ll see automakers introduce a smattering of smaller, cheaper to produce cars (although not enough to reverse the Canyonerofication of automobiles that we’ve seen in NA).

Eventually, automakers will retool their supply lines to avoid the tariffs and prices will come back down somewhat (but not to pre-tariff levels).

When it comes to EVs? No idea. Theoretically they have fewer parts and there has been a push towards US battery manufacturing, but all the raw materials and most electronics come from overseas. And given the current administration’s views on anything even remotely green… ?‍

 

[ChehRob]

So let's knee chop both General Motors and Ford, and with just a little more luck bankrupt them. That'll show 'em. I just can't think of who 'em' is. Oh, Wait!

 

[geeklifer]

Was discussing this the other day and my take on it is that new car prices are going to jump, followed by increases in used car prices as inventory dwindles (since people will hold onto their cars longer) and demand increases (people who need a car but can’t afford a new car). This is similar to what we saw post-COVID when supply chains were disrupted.

Over the medium term, I think we’ll see automakers introduce a smattering of smaller, cheaper to produce cars (although not enough to reverse the Canyonerofication of automobiles that we’ve seen in NA).

Eventually, automakers will retool their supply lines to avoid the tariffs and prices will come back down somewhat (but not to pre-tariff levels).

When it comes to EVs? No idea. Theoretically they have fewer parts and there has been a push towards US battery manufacturing, but all the raw materials and most electronics come from overseas. And given the current administration’s views on anything even remotely green… ?‍

Don't forget insurance will jump too. It will cost the insurers more to fix and replace cars, and they will not just absorb the cost.

 

[E90alex]

Over the medium term, I think we’ll see automakers introduce a smattering of smaller, cheaper to produce cars (although not enough to reverse the Canyonerofication of automobiles that we’ve seen in NA).

Eventually, automakers will retool their supply lines to avoid the tariffs and prices will come back down somewhat (but not to pre-tariff levels).

I don’t think we will see a resurgence of cheaper small cars at all. Small cars are not profitable which is part of why cars have gotten bigger. A lot of the least expensive cars on the market are made in Mexico or other countries because it reduces production cost and lets them sell it for a lower price.

The expensive part is the engineering and electronics which in most modern cars have components and computers shared between the cheapest and up to the most expensive.

So the engineering and major component cost is shared and not much different for a cheaper/smaller vs bigger/more expensive model. It will cost incrementally more in other materials like sheet metal and glass and paint. But they can sell the bigger car for several thousands, sometimes tens of thousands more.

Even if automakers move more component production and assembly within the US, the cost will be just as much if not more than the tariffs. It might even be cheaper for some to pay the tariff than to move production to the US. If the tariffs so go into effect and prices increase, we will see a raised price floor for everything that will likely remain even if the tariffs go away. Companies will see consumers are still paying the inflated prices because they pretty much have no choice so why would they lower it?

Same thing happened post COVID supply chain issues. Prices were raised and didn’t come back down to pre-COVID levels yet corporate profits soared.

 

[YeOldeTraveller]

Couple of points (some already made above):

Depending on the model and the OEM, it is not just the finished prodcut that crosses the border. Some parts and assemblies cross the border multiple times before the vehicle is complete. It is possible this actually hits the dometic OEMs harder as they may have more border crossings in their supply chain than the non-domestic OEMs.

Effectively, all new cars are going to cost more. This will slow sales of those new cars and drive some additional sales to the used market. This will increase demand there while reducing supply, due to the slower replacement with new cars. This will make used cars more expensive. Which will also slow sales.

Expect that any new designs need about 2 years from idea to wheels on the road. This could be longer if there is not enough capacity in the right places to handle the redesign and the new supply chain requirements as that new capacity will also take time and money to create.

The final thing is that all of this will increase cost without adding anything to the revenue the OEMs will receive while reducing volume. At best, this will reduce profits.

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