Trump's Tariffs: A Profit Wipeout for GM, Ford, and Stellantis?

Barclays has issued a stark warning: President Trump's proposed tariffs on imports from Canada and Mexico could potentially eliminate the profits of Detroit's "Big Three" automakers – General Motors (GM), Ford, and Stellantis. The analyst, Dan Levy, cautioned that without any adjustment from the automakers, the tariffs could wipe out their profits entirely. Let's delve into the potential impact of these tariffs and explore the strategies these companies could employ to mitigate the costs.



The automotive sector is expected to be among the industries most affected by Trump's tariffs, with the "Detroit Three" deriving the majority of their profits from North America. According to Anderson Economic Group, tariffs could increase the cost of manufacturing an electric vehicle by $12,000. Meanwhile, Stellantis has expressed concern that the tariffs could put its Jeep, Ram, Chrysler, and Dodge brands at a competitive disadvantage against their European and Asian competitors.

The potential impact of retaliatory tariffs from Canada and Mexico on U.S. auto exports is significant. Canada and Mexico are the top two foreign markets for U.S.-built cars and light trucks, accounting for 53% of America's auto exports. Andrew Foran of TD Economics estimates that 25% tariffs would push down auto sales by 13.6% a year in Canada and 10.6% in the United States. This could lead to a substantial decrease in sales for U.S. automakers in these markets, further exacerbating the profitability challenges faced by the Detroit Three.



To mitigate the impact of tariffs, the Detroit Three automakers could consider the following strategies:

1. Price Increases: Automakers could pass on the increased costs to consumers by raising vehicle prices. Jefferies predicted an average price increase of about 6% or $2,700 per vehicle, while two other analyses agreed on a $3,000 average price bump.
2. Relocating Production: Companies could move some production back to the U.S. or to other countries with lower tariffs. However, this would require significant time and investment.
3. Stockpiling Parts: Automakers could stockpile parts from Canada and Mexico before the tariffs take effect to avoid immediate cost increases.
4. Lobbying for Exemptions: The automakers could lobby for exemptions under the parts-sourcing rules of the United States-Mexico-Canada Agreement (USMCA).
5. Reducing Profit Margins: To protect sales, automakers might absorb some costs instead of passing them all along to car buyers, which could lead to reduced profit margins.

In conclusion, Trump's tariffs on imports from Canada and Mexico could have a devastating impact on the profitability of GM, Ford, and Stellantis. The combination of increased costs, decreased sales, and potential retaliatory tariffs could lead to a significant disruption in the North American auto industry. The Detroit Three automakers must explore various strategies to mitigate these costs and adapt to the changing landscape of international trade.