Report: Tariffs Could Lead To Halt In Auto Production

According to The Detroit Free Press, the firm has put out three possible scenarios that could play out, depending on how the trade wars go. In one, production could drop by 20,000 vehicles per day just a week from yesterday.

From S&P via Freep:

"Although some contend that tariffs on the auto industry may boost U.S. manufacturing, only GM, Ford and Stellantis have excess capacity to increase U.S. production, and automakers are not likely to be able to make such a change quickly or cost-effectively," S&P Global's report said. "A production shift would also require suppliers to relocate."

S&P says that the chance of a quick resolution to the tariff issues is only 30 percent.

S&P further points out that the auto industry doesn't like to invest without long-term stability. Tariffs aren't the only thing causing uncertainty that could delay investment and the development of future vehicles -- there is also confusion over what may happen with fuel economy and emissions regulations.

Again from S&P via the Freep:

"With tariffs now imposed on Canada and Mexico, we expect significant disruption in the region. S&P Global Mobility sees potential for North American production to drop by up 20,000 units per day within a week," the report stated. "We now expect that the tariff posture, messaging and coverage through 2025 will be erratic, placing (automakers) and suppliers’ mid- or long-term vehicle and facility planning in a virtual gridlock."

For now, Trump has enacted 20 percent tariffs on China and put 25 percent tariffs on Canadian and Mexican products, but exempted automakers that are part of the USMCA until April 2. He's also put 25 percent tariffs on steel and aluminum coming in from all countries. Canada and the European Union have hit back with tariffs on American goods -- the EU, for example, is tariffing motorcycles.

China has retaliated, too, with tariffs on chicken, beef, pork, soybeans, fruit, wheat, and corn.

For a vehicle to be USMCA compliant, it must have 75 percent of its content sourced from Canada, Mexico, or the U.S. Additionally, 40 percent of core parts and 70 percent of steel and aluminum must be sourced from the region, and wage requirements also must be met.

Given the complexity of supply chains, it's hard to say exactly which cars are compliant. S&P says Canadian-built vehicles with engines and transmissions sourced from USMCA countries are the most likely to comply. That means Stellantis, General Motors, and Toyota are the most likely to comply. Honda imports some of its transmissions, and Ford also might not be compliant. S&P says Nissan likely is, as is Mazda, despite importing some transmissions. Hyundai/Kia are likely to be compliant, but it's harder to tell with Volkswagen. BMW and Mercedes-Benz are unlikely to be compliant because they source engines and transmissions from Europe.

S&P's three scenarios are this: quick resolution, extended disruption, and tariff winter. That last one means tariffs would continue for a long time and cars would cost more, either because of the tariffs or because automakers would shift some production back to the U.S. and incur higher labor costs. The costs of tariffs or more-expensive labor would be passed on to the consumer. In this last scenario, sales would tumble about 10 percent in the U.S.

S&P does expect some production to shift back to the U.S., either because of the tariffs or because an automaker had already decided to build a certain model in the States but had yet to announce it. Still, it would take time to shift production and sales would likely drop before that can happen.

[Image: Gorodenkoff/Shutterstock.com]

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