Automakers Grapple with Potential Tariffs, Seek Relief
DETROIT, March 5 (Reuters) – The U.S. auto industry is scrambling to adapt to the potential impact of U.S. President Donald Trump’s proposed 25% tariffs on vehicles manufactured in Canada and Mexico. Automakers are racing to plan for the financial implications and hoping for a resolution in Washington to avert significant cost increases on some of America’s top-selling vehicles, particularly full-sized pickup trucks.
In a move that offered some breathing room, the White House announced a potential exemption shortly after the tariffs were announced. Many vehicles built in North America would be spared if they already met the rules of origin outlined in the 2020 U.S.-Mexico-Canada Agreement (USMCA), which was enacted during Trump’s first term.
“We are going to give a one-month exemption on any autos coming through USMCA… so they are not at a disadvantage,” White House press secretary Karoline Leavitt told reporters on Wednesday. “Reciprocal tariffs will still go into effect on April 2.”
During a Tuesday call, Trump proposed a 30-day pause on USMCA-compliant vehicles in exchange for expanded U.S. production, according to reports from Reuters. The call included GM CEO Mary Barra, Ford CEO Jim Farley, Ford executive chair Bill Ford Jr., and Stellantis chairman John Elkann.
Several sources within the auto industry indicate that manufacturers are receptive to boosting U.S. investment. However, they are seeking certainty regarding tariff policies and vehicle emissions regulations before committing to major operational changes.
Such a deal is particularly significant for pickup truck manufacturers and their customer base, which leans heavily toward Republican voters.
Approximately one-third of U.S. pickup trucks sold by both American and foreign brands are manufactured in Mexico and Canada, according to data from Global Data. This cornerstone of the U.S. auto industry generates a significant portion of sales and profits for General Motors, Ford, and Stellantis, the parent company of Jeep and Ram truck brands.
Automakers, including both U.S. and international brands, sold nearly 3 million pickup trucks in the U.S. last year, which accounted for about 20% of overall national sales. A survey conducted in August by Edmunds, an industry information provider, revealed that pickup truck drivers are roughly twice as likely to identify as Republicans compared to Democrats.
The temporary tariff pause will give the industry some room to keep consumer prices stable, given the current inventory on dealer lots. Rhett Ricart, an Ohio dealer with franchises for GM and Ford, expressed optimism for a swift resolution to avoid a crisis.
“I think it won’t take a month for them to figure out how to handle this thing,” he said, speaking before Wednesday’s announcement. “I’ll be more concerned … 30 days from now.”
Potential Cost Increases
Trump’s tariff threats have initiated contingency planning among automakers and suppliers to mitigate or absorb the additional costs. Analysts at Wolfe Research have estimated that the tariffs could increase a vehicle’s cost by an average of $3,000, potentially rising to around $7,000 for models imported from Canada or Mexico. Full-size pickups average around $65,000, according to January data from Cox Automotive.
“Once the manufacturer starts passing on that cost to us, we’re going to have no choice but to pass it on” to consumers, stated Jeff Tamaroff, Chairman of Tamaroff Auto Group, which owns Honda and Nissan dealerships in Michigan.
These projected cost increases would be in addition to already rising vehicle prices. According to Cox Automotive data, the average vehicle sale price was $48,641 in January. GM’s Chevrolet and GMC pickups, in addition to Stellantis’s RAM trucks, are more exposed to the tariffs than Ford because they manufacture a greater number of pickups in Mexico.
Because some Ford truck engines are made in Canada, this underscores the complex economic interdependence among the three North American trading partners. Industry research has found that almost no American-made vehicle is composed entirely of American parts.
Barclays bank analysts estimate that Mexico supplies up to 40% of the parts in U.S. vehicles, while Canada accounts for more than 20%. Additionally, some suppliers indicate they will partly have to manage part of the tariff costs, potentially experiencing further financial impact if consumer demand weakens due to increased vehicle prices.
Complex Supply Chains Raise Concerns
Automakers and suppliers are also concerned about the tariffs’ effects on the movement of vehicle components across borders. Companies worry that parts could be taxed with each border crossing, although the specifics of Trump’s policy remain unclear.
Take the example of truck transmissions manufactured by German supplier ZF Friedrichshafen. These transmissions, which are used in Ram and other vehicles, involve parts that cross borders multiple times before they are assembled. The journey starts with torque converters from a factory in Mexico. These parts are then transported to a ZF plant in South Carolina to be assembled. The finished transmissions, including the torque converter, are sent to Mexico, crossing the border again to be installed in a Ram pickup before again crossing the border to go to a U.S. dealer.
According to ZF, about 30 other car and truck components follow a similar path across the U.S.-Mexico border.
“A tariff over Mexico, in this particular case, or over Canada, is going to mean hundreds of millions of dollars as an impact” on the industry overall, said ZF North America President Ramiro Gutierrez.
If major production shifts do not take place, the ripple effect across thousands of individual auto parts could reach $40 billion by the end of 2025, according to Bernstein analysts.
“However bad it looks, it’s worse,” said Pat D’Eramo, the chief executive of Martinrea, a Canadian company producing brake lines and other products. The company has manufacturing operations in all three North American countries that have some products crossing borders multiple times.
The American auto industry, which has benefited from free trade across the U.S., Canada, and Mexico for decades, is now considering adjustments to its supply chains if trade disputes continue.
Since the Trump administration implemented USMCA in 2020, U.S. automakers and their suppliers have invested billions to expand their U.S. operations to avoid tariffs. Now, some industry executives are arguing that they are being penalized for complying with Trump’s signature trade deal.
“This is a bonanza for our import competitors,” Ford CEO Jim Farley said of Trump’s new tariff threats, pointing out that some rivals import from Asian countries with few duties.
