Even with monthlong reprieve, potential 25% tariffs threaten
to increase consumer prices and disrupt production and sales across
key markets
SOUTHFIELD, Mich., Feb. 4,
2025 /PRNewswire/ -- The North American automotive
industry is bracing for significant disruptions as the U.S.
government has announced potential tariffs of up to 25% on imported
vehicles from Canada and
Mexico, and 10% for vehicles
mainland China, while components
and EVs already are under tariffs of 25% and 100% respectively.
The proposed tariffs could not only inflate
vehicle prices but also disrupt production schedules, says Michael
Robinet
This decision comes amidst ongoing trade negotiations, with
tariffs for Canada and
Mexico temporarily delayed, but
uncertainty remains.
In 2024, the U.S. imported some 3.6 million light vehicles from
Canada and Mexico, representing 22% of all vehicles sold
in the U.S. Mexico is currently
the largest source of U.S. light vehicle imports, passing
Japan, South Korea and all of Europe. S&P
Global Mobility estimates that about 54% of U.S. light vehicle
sales were produced in the U.S., 15% in Mexico and just under 7% from Canada in 2024.
According to the latest S&P Global Mobility analysis, if
these tariffs are implemented, a 25% duty on the average
$25,000 landed cost of a vehicle from
Mexico and Canada could add up to $6,250 to the price of a new vehicle, according
to S&P Global Mobility estimates, and importers are likely to
pass most, if not all, of this increase to consumers. With average
vehicle prices near all-time highs, this additional tariff would
put further strain on affordability for consumers in an already
volatile time.
If components and parts are also subject to the 25% tariff,
vehicles produced in the U.S. with any components sourced from
Canada or Mexico would also see costs rise by 25%. Given
the free flow of components across borders, the tariffs would
impact most vehicles produced in the U.S. as well.
"The automotive industry is at a critical juncture," said
Michael Robinet, vice president of forecasting at S&P Global
Mobility. "The proposed tariffs could not only inflate vehicle
prices but also disrupt production schedules, with estimates
suggesting a potential 30% decrease in production for high-exposure
vehicles once tariffs are enacted, even if only for the short-term.
This will lead to ripple effects across the supply chain, impacting
OEMs, suppliers and, ultimately, consumers."
Following the 30-day negotiated reprieve, S&P Global
Mobility's latest analysis indicates a 30% probability of an
extended disruption lasting six to eight weeks, during which
automakers may slow or halt production of vehicles that would be
impacted; those produced in Canada
and Mexico. As OEMs look to
protect profitability, they may conserve inventory and limit
discounts and incentives, further straining consumer access to
affordable new vehicles. However, with a six-to-eight-week
disruption, most sales and production losses could be recovered
within 12 months, according to the analysis.
The more dire scenario is a Tariff Winter. S&P Global
Mobility currently anticipates this as a 10% probability. In this
case, tariffs of 25% on Mexico and
Canada would be integrated
long-term into the auto trade structures, creating an environment
of sub-optimal sourcing as vehicles and components produced in
Mexico and Canada are currently in those locations
because it does create an optimal scenario.
Working to move that production to the U.S. to avoid the tariff
also increases the cost of labor for manufacturing, as well as the
potential to further exacerbate a general labor shortage. Though in
a Tariff Winter we would expect to see re-sourcing occur, due to
the sub-optimal sourcing, North American light-vehicle sales could
decline by 10% for several years with a long-term decline in
competitiveness. Specifically, the decline is likely to be 10% in
the U.S. 8% in Mexico and 15% in
Canada in this scenario.
"With both Mexico and
Canada able to delay
implementation until March 1,
activities to adjust trade structures with the European Union, the
United Kingdom, Japan and South
Korea may be a new focus and arrive this spring," said
Stephanie Brinley, associate
director at S&P Global Mobility and contributor to this
analysis.
In addition to immediate impacts, the uncertainty surrounding
these tariffs creates a situation in which investment decisions
face increased risk. This is likely to delay the development of
future vehicle programs, particularly in light of evolving emission
and fuel economy regulations. The automotive sector is urged to
prepare for potential short-term disruptions, including production
halts and supply chain bottlenecks. The uncertainty is also
expected to be weighing on consumers, who may be more circumspect
about near-term discretionary purchases.
For additional details and insights from the S&P Global
Mobility team, today's full analysis can be found
here.
About S&P Global Mobility
At S&P Global Mobility, we provide invaluable insights
derived from unmatched automotive data, enabling our customers to
anticipate change and make decisions with conviction. Our expertise
helps them to optimize their businesses, reach the right consumers,
and shape the future of mobility. We open the door to automotive
innovation, revealing the buying patterns of today and helping
customers plan for the emerging technologies of tomorrow.
S&P Global Mobility is a division of S&P Global (NYSE:
SPGI). S&P Global is the world's foremost provider of credit
ratings, benchmarks, analytics and workflow solutions in the global
capital, commodity and automotive markets. With every one of our
offerings, we help many of the world's leading organizations
navigate the economic landscape so they can plan for tomorrow,
today. For more information, visit www.spglobal.com/mobility.
Editor's Note: S&P Global Mobility
analysts are available for interviews and additional commentary as
the situation continues to develop. Please reach out to
Michelle.Culver@spglobal.com to arrange an interview.
Media Contact:
Michelle Culver
S&P Global Mobility
248.728.7496 or 248.342.6211
Michelle.culver@spglobal.com
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SOURCE S&P Global Mobility
