(Bloomberg) -- Shares of US automakers tumbled on worries that a new round of tariffs imposed by President-elect Donald Trump will cause sticker prices to soar even further.
Trump said that he would impose additional 10% levies on goods from China and 25% on all products from Mexico and Canada – critical trade routes for the auto industry’s global supply chain. It’s unclear how new tariffs would be implemented under an existing trade agreement between the US, Canada and Mexico, but the threat underscores the incoming president’s intention to shake up global trade ties.
Tariffs of that magnitude on the roughly $97 billion worth of auto parts and 4 million finished vehicles that come to the US from Canada and Mexico would be “devastating,” Wolfe Research analysts said in a note on Tuesday. Average new-car prices would rise about $3,000, they said, adding to an almost $50,000 cost that many consumers are struggling to afford.
“The entire year, we’ve been talking about affordability,” said Stephanie Valdez Streaty, director of industry insights at market researcher Cox Automotive. “Anything that’s going to increase prices is going to be difficult for consumers who are already facing difficulties in affording vehicles.”
General Motors Co.’s shares fell 9% on Tuesday, the biggest drop since 2020. Shares of Ford Motor Co. and Stellantis NV also declined.
Stellantis, Volkswagen AG, Ford and GM would be “highly exposed” to an increase in tariffs on Canada and Mexico, according to Bernstein analysts. Stellantis and VW import about 40% of the vehicles they sell in the US, while GM imports roughly 30% and Ford 25%, according to a research note.
GM and Stellantis import 55% of trucks sold in the US from Mexico and Canada, according to Bernstein. Stellantis imports the heavy-duty version of its Ram pickup trucks and commercial vans from Mexico. Ford imports the electric Mustang Mach-e from Mexico, as well as the Bronco Sport SUV and Maverick small pickup truck.
Trump repeatedly vowed during his campaign to use tariffs to bring more factories and jobs back to the US. It’s an outgrowth of his first term in office, when he employed a combination of real and threatened tariffs in an effort to reorder industry supply chains and trade alliances.
Even if Trump follows through with the tariff threat, it would not result in an immediate bump to auto jobs, said Sam Fiorani, vice president of forecasting for AutoForecast Solutions.
“It will take years to shift production from one place to another,” he said. “And it’s not going to add jobs in six months. In the short-term, it’s definitely gonna be a hardship.”
Retaliation Risk
The auto industry’s outsized role in US-Mexico trade was on full display Tuesday, as Mexico President Claudia Sheinbaum invoked GM, Ford and Stellantis by name as she suggested the country could raise tariffs of its own in response to new levies by Trump.
“One tariff will be followed by another in response, and so on until we put common companies at risk,” she said during her daily press conference in Mexico City. “The main exporters from Mexico to the US are General Motors, Stellantis, and Ford Motor Company, which arrived 80 years ago. Why put in place a tariff that puts them at risk?”
GM has one of its four North American plants making large pickup trucks in Silao, Mexico, with much of its production coming to the US. The Detroit-based carmaker also imports the Chevrolet Equinox EV from a plant in Ramos Arizpe, which also builds the Blazer EV. The Equinox starts at $35,000 and played a big role in GM’s surge in plug-in sales in the second half of this year.
Additional levies could also pose risk to a push by Jeep and Ram brand owner Stellantis to shift its manufacturing footprint to lower-cost countries, including Mexico. It’s part of an effort by Chief Executive Officer Carlos Tavares to drive down the cost of EVs and offset higher labor expenses in the US — a strategy squarely at odds with the agenda of Trump’s incoming administration.
The automaker has laid off thousands of workers in Michigan and Ohio this year, including 1,100 at a truck plant in Warren, Michigan. At the same time, it’s expanding a truck plant in Saltillo, Mexico to make Ram 1500 pickups in addition to the heavy-duty trucks it already makes there.
Contingency Plans
Given the magnitude of auto industry fallout from additional tariffs, “we’d expect most investors to assume Trump ultimately does not follow through with these threats,” Wolfe analysts led by Emmanuel Rosner said in their note. “However, we can’t say for sure.”
Chris Feuell, the CEO of the Ram brand, said last week that the company would be flexible in navigating any policy changes from the 47th president and could potentially revise its investment plans.
At an industry conference in New York last week, Ford Chief Financial Officer John Lawler said the company has been gaming out various scenarios to determine what impact tariffs might have on their business and how the company would adjust pricing and profitability.
“We’ll have to see what the level of tariff is and what we can do with that,” Lawler told analysts at a Barclays conference on Nov. 20. “Remember it’s four years and we don’t know how lasting this will be. We need to think about things on the longer cycle and the longer arc.”
--With assistance from Keith Naughton, Rafael Gayol and Carolina Millan.
(Updates with analyst comment from third paragraph.)
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