Ford CEO Warns U.S. Tariffs Could Devastate Automotive Industry

Ford Motor Company's Chief Executive Officer, Jim Farley, recently voiced significant concerns about the impact of the new U.S. administration's tariff policies on the automotive industry. During an investor conference, Farley described these tariffs as "devastating," warning that they could create an unprecedented crisis for the U.S. automotive sector. The intricate supply chain that has developed over decades between the United States, Mexico, and Canada could be severely disrupted, leading to significant cost increases and operational chaos.

The production of a single vehicle in North America often involves multiple cross-border movements of components. Imposing tariffs on these components would be akin to introducing sand into a finely tuned machine, disrupting the smooth operation of the North American automotive supply chain and driving up vehicle prices in the region.

In the plastic parts manufacturing plant of Alian Plastics in Monterrey, molten plastic from the U.S. is molded into components like headlight housings. These parts are then shipped back to the U.S. for assembly before returning to Mexico for final vehicle assembly and eventual export to the U.S. This process exemplifies the close collaboration within the North American automotive supply chain. However, if tariffs are imposed at each stage, the cumulative tax burden could become unbearable for companies.

The U.S. government's claim that increased tariffs will protect American-made vehicles is misleading. Today's automotive industry relies on global resources, and even the popular Ford F-150 pickup, which has been a staple in the U.S. for over 40 years, has less than half of its components sourced from U.S. factories. Ford operates assembly plants in Cuautitlan and Hermosillo, an engine plant in Chihuahua, and an assembly plant in Oakville. Last year, the U.S. imported 8 million vehicles, with Mexico being the largest exporter to the U.S. at 3 million vehicles, followed by Canada at 1.1 million vehicles.

The economic impact of these tariffs is expected to be substantial. The cost of the cheapest U.S. vehicles could rise by $2,500 to $5,000, while some imported vehicles could see price increases exceeding $20,000. This would make cars unaffordable for a larger segment of the U.S. population. Currently, 40% of American consumers cannot afford to buy a new car, a figure that has doubled from 20% a decade ago. The additional tariffs would exacerbate this issue, making car ownership even more out of reach for many Americans.

The U.S. automotive industry has been facing challenges for the past decade, with production volumes declining from over 4 million vehicles in 2014 to 1.7 million in 2022. Factors contributing to this decline include rising production costs, intensified global competition, and the slow transition to electric vehicles. The U.S. government's attempt to revive the domestic automotive industry through tariffs is likely to backfire, as it would increase the cost of raw materials like steel and aluminum, which are essential for vehicle manufacturing.

The U.S. has already imposed a 25% tariff on imported steel and aluminum, which could add $1,500 to the cost of producing a vehicle in the U.S. This would further drive up vehicle prices, potentially leading to a decrease in demand and production, and ultimately, job losses in the industry. The Canadian Automotive Parts Manufacturers' Association has warned that the tariff war could push the North American automotive industry to the brink of collapse.

The uncertainty surrounding U.S. tariff policies is causing significant concern within the automotive industry. In Mexico's Nuevo Leon state, which is a hub for the automotive industry, the word "uncertainty" is frequently highlighted in red ink. This uncertainty is reminiscent of the early days of the COVID-19 pandemic, when companies had to constantly update their emergency plans. At recent industry conferences, both small manufacturers and multinational corporations are developing contingency plans to mitigate the risks posed by tariffs.

General Motors' Chief Financial Officer, Paul Jacobson, recently informed investors that the company is prepared to handle short-term tariffs but would face greater challenges if the tariffs become permanent. This would necessitate difficult decisions, such as relocating factories and determining the best locations for such moves. The uncertainty surrounding tariff policies makes it difficult for companies to make long-term strategic decisions.

Typically, automotive companies begin designing and testing new models at the start of each year. However, this year, many North American manufacturers are hesitant to proceed with their plans for 2026 model development due to the uncertainty surrounding tariffs. This delay in decision-making could further isolate the U.S. automotive market from global trends, potentially leading some manufacturers to abandon the U.S. market altogether if they face high tariffs and low sales volumes.