Trump Delays Auto Tariffs. Pickup Trucks Might Explain Why
DETROIT (Reuters) – The U.S. auto industry is breathing a collective sigh of relief after the White House announced a temporary pause on potential new tariffs. This move, coming just hours after tariffs went into effect, could be a critical lifeline for the industry.
The tariffs, set at 25%, targeted vehicles imported from Canada and Mexico and threatened to significantly increase costs for some of America’s most popular vehicles, including full-sized pickup trucks. A White House spokesperson indicated that many vehicles built in North America would be exempt if they already met the complex “rules of origin” outlined in the 2020 U.S.-Mexico-Canada Agreement (USMCA), 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 Wednesday. “Reciprocal tariffs will still go into effect on April 2.”
According to Reuters, President Trump discussed the possibility of a 30-day pause on USMCA-compliant vehicles in exchange for expanded production in the U.S., during a Tuesday call with several auto executives. This included GM CEO Mary Barra, Ford CEO Jim Farley, Ford executive chair Bill Ford Jr., and Stellantis chairman John Elkann.
Automakers have expressed support for increased U.S. investment but are seeking clarity on tariff policies and emissions rules before making major changes, sources indicate.
This potential deal could be especially beneficial to pickup-truck manufacturers and their customer base, which leans heavily toward Trump’s base.
About a third of U.S. pickups, both American and foreign brands, are assembled in Mexico and Canada, according to Global Data. The pickup truck is a vital segment of the U.S. car industry, generating a substantial portion of the sales and profits for General Motors, Ford, and Stellantis (which owns the Jeep and Ram truck brands). Last year, automakers sold almost 3 million U.S. pickups, accounting for about 20% of total national sales.
Data from an August survey by Edmunds, an industry information provider, found that pickup drivers are roughly twice as likely to identify as Republicans.
The pause on tariffs gives the industry more time to avoid raising consumer prices, as existing inventory sits on dealer lots. Ohio dealer Rhett Ricart, who sells GM and Ford vehicles among other brands, expressed optimism that a solution could be reached quickly.
“I think it won’t take a month for them to figure out how to handle this thing,” he said, before Wednesday’s announcement. “I’ll be more concerned … 30 days from now.”
‘NO CHOICE’ But to Pass on Costs
Trump’s tariff threats have already forced automakers and suppliers to consider how they might avoid or absorb these potential taxes and how much prices may be hiked. The answers to such questions will vary depending upon each automaker and their suppliers’ dependency on Canada and Mexico manufacturing.
Analysts at Wolfe Research estimated that the tariffs would raise the average cost of a vehicle by about $3,000, and around $7,000 for models imported from Canada or Mexico. The average transaction price for full-size pickups is about $65,000, data from January from Cox Automotive show.
“Once the manufacturer starts passing on that cost to us, we’re going to have no choice but to pass it on” to consumers, said Jeff Tamaroff, Chairman Of Tamaroff Auto Group, which owns Honda and Nissan dealerships in Michigan.
These added costs would come on top of already elevated vehicle prices, which increased significantly during the coronavirus pandemic and have not substantially decreased. The average vehicle sales price reached $48,641 in January, according to Cox Automotive data.
Within Detroit’s brands, GM’s Chevrolet and GMC pickups, and Stellantis’s Ram, are more exposed to the tariffs since they build a high volume of pickups in Mexico. Ford’s F-series pickups are assembled in the United States, however, they also produce some truck engines in Canada, underscoring the level of economic integration among the three North American trade partners.
Automotive industry research indicates that almost no American vehicle is made entirely with American-sourced parts. According to Barclays bank analysts, Mexico supplies up to 40% of the components in U.S. vehicles, and Canada provides more than 20%.
Complex Supply Chains at Risk
Suppliers have concerns they’ll have to absorb a portion of tariff costs and will likely be negatively impacted if consumer demand declines because of rising vehicle prices. Automakers and suppliers are also concerned about the effects of tariffs on vehicle components that cross borders several times before reaching their final destination. Companies worry that such parts could be taxed with every border crossing, though Trump has not clarified his policy in such cases.
ZF Friedrichshafen, a German supplier, makes truck transmissions. These transmissions, used in the Ram and other vehicles, include parts that cross borders multiple times before they are completed, as an example.
The initial stage begins in a Mexico factory that produces torque converters. These converters are then sent to a ZF facility in South Carolina for transmission assembly. The completed transmission, including the torque converter, goes back to Mexico for installation in a Ram pickup, which crosses the border again to reach a U.S. dealer.
According to ZF, around 30 other automotive and truck components follow a very 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 auto industry overall, ZF North America President Ramiro Gutierrez reported.
If production shifts are not made, the ripple effect across thousands of individual auto parts could reach $40 billion by the end of 2025, Bernstein analysts estimate.
“However bad it looks, it’s worse,” said Pat D’Eramo, the CEO of Martinrea, a Canadian company, which manufacturers brake lines and other products. The company has several manufacturing operations in all three North American countries where some products cross borders multiple times.
The U.S. auto industry, traditionally accustomed to free and open trade across the U.S., Canada, and Mexico, is now considering adjusting supply chains if the trade war continues, a potentially expensive proposition.
Since the Trump administration enacted USMCA in 2020 to replace the 1994 North American Free Trade Agreement, U.S. automakers and their suppliers have already invested billions to expand their U.S. footprint and avoid tariffs.
Some industry executives have said that they feel they are being punished for complying with Trump’s signature trade deal.
“This is a bonanza for our import competitors,” Ford CEO Jim Farley told analysts last month of Trump’s new tariff threats, pointing out that some rivals import from Asian countries with few duties.
(Reporting by Nora Eckert and Kalea Hall in Detroit, David Shepardson in Washington, Eric Cox in Detroit; Editing by David Gaffen, Brian Thevenot and Suzanne Goldenberg)
