U.S. car manufacturers appeal to President Trump highlighting supply chain intricacies and disadvantage with imports
Washington, D.C.—The Trump Administration on Wednesday pulled back on the 25-percent tariffs — temporarily — that the President had imposed on Mexico and Canada this week. The decision gives U.S. automakers an opportunity to recalibrate and plan to bring jobs and production back to the States, but only until April 2.
Auto manufacturers GM, Ford and Stellantis met with President Trump yesterday to state their plea and highlight how their complex supply chains are integrated between the two border countries.
“We spoke with the Big Three auto dealers — we’re going to give a one month exemption on any autos coming through USMCA,” said White House Press Secretary Karoline Leavitt. “Reciprocal tariffs will still go into effect April 2. But at the request of the companies associated with USMCA, the President is giving them an exemption for one month so they are not at an economic disadvantage.”
The USMCA (United States-Mexico-Canada Agreement) is a free trade deal that President Trump had negotiated in his first term. It’s projected that when April 2 arrives, there will be tariffs on all foreign car manufacturers across the globe, stated NPR in a news report.
The reasoning was explained during a Wednesday Fox News segment with U.S. Commerce Secretary Howard Lutnick, who said U.S. automakers argued that tariffs only on domestic car manufacturers would place them at an unfair disadvantage with imported vehicles (Germany, Korea, Japan, for example), who would have had no tariffs.
Global credit rating agency Morningstar DBRS released a commentary yesterday stating that the additional costs of the Canada-Mexico tariffs on affected vehicles would vary by vehicle segment. If the 25-percent tariffs take effect April 2, it is estimated to affect vehicle prices in a range from approximately $3,000 per unit for compact passenger vehicles to as much as $10,000 per unit for larger SUVs and pickup trucks.
“While in recent years OEMs have enjoyed very strong (and progressively increasing) pricing levels, this was significantly enabled by sizable pent-up demand that had accumulated given prior extended shortages in vehicle supply,” said Morningstar DBRS.
That looks like that might be changing, however. Regarding the immediate effects of the tariffs, Morningstar DBRS added, “With demand now normalizing and automotive inventories being largely replenished, OEMs would be expected to incur a significant proportion of the additional costs caused by the Mexico-Canada tariffs, with their respective ability to impose [short-term] additional price increases to consumers now being quite limited.”
Morningstar noted that the Canada-Mexico tariffs affect various OEMs substantially differently, as illustrated in the graph above, which indicates the national level of automotive production in Mexico and Canada over the past several years. “Mexico’s automotive production readily exceeds that of Canada, significantly reflecting its sizable labor cost advantage while maintaining close proximity to the United States. As such, Mexico is the largest exporter of assembled vehicles to the U.S.”
In response to the new tariffs, Honda stated it will move production of its next-generation Civic hybrid from Mexico to the U.S. in Indiana, according to a report from Reuters. The move represents the first tariff-based decision by a major Japanese automaker to avoid tariffs. The new Civic production has now been shifted from November 2027 to May 2008.
“We have cars landing tonight, which means tomorrow’s cars are going to be more expensive,” John Luciano, owner of Street Volkswagen in Amarillo, Texas, told The Washington Post on Tuesday. “I’m not sure the consumer has caught on yet to how much cars are going to go up, but it’s going to be big.”
That may be on hold, if only for a while. Luciano and other dealerships across the country now have a one month reprieve, though some dealers are developing strategies to move inventory off their lots right now, promoting “pre-tariff” sales, encouraging prospective car buyers to buy now — or pay later.
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