Ford, GM to Benefit from Trump Tariffs: Winners and Losers

The Trump administration’s tariffs on imported goods, particularly metals, cars, and high-tech imports, have sent shockwaves through the stock market. However, one analyst believes the domestic automotive industry in the U.S. is poised for a surprising boost. John Murillo, the chief dealing officer at a global fintech solutions provider for financial institutions, B2BROKER, sees the protectionist measures as a silver lining for the American automotive sector, predicting increased demand due to reduced foreign competition.

The Impact on Ford and GM

Murillo’s analysis suggests that Ford and General Motors (GM) will see higher demand on their production over time, which will offset all current inconveniences with reorientation for alternative foreign supply parts producers. “Since tariffs are imposed on foreign cars competing with U.S. cars for consumer preferences, it will be precisely the American automotive industry that reaps the fruit of this protectionism,” Murillo told Benzinga.

Ford and GM have already shown signs of adapting to the increased demand. For instance, GM reported a nearly 17% increase in new vehicle sales compared to the first quarter of the previous year, while Ford reported a 19% increase in retail sales in March and a 5% increase overall for the quarter. This adaptability suggests that they are well-positioned to capitalize on the increased demand and potentially gain a larger share of the U.S. automotive market.

Strategic Adjustments

To mitigate the impact of increased costs and maintain operational efficiency, Ford and GM are likely to implement several strategic adjustments, including supply chain reconfigurations and production shifts.

1. Supply Chain Reconfigurations:
- Shifting Production: Both Ford and GM might consider shifting some production back to the United States to reduce reliance on imported parts and materials. However, this strategy comes with challenges such as higher labor costs in the U.S. compared to Mexico and China, as well as significant capital investments required to retool factories and establish new production lines.
- Streamlining Operations: Both companies had already begun streamlining operations by discontinuing low-performing vehicle models. Further cost-cutting measures, such as workforce reductions or plant closures, could be employed to offset tariff-related expenses.

2. Production Shifts:
- Price Adjustments: One immediate response to increased costs would be passing the burden onto consumers by raising vehicle prices. However, this approach carries risks, as higher prices could reduce demand, particularly for price-sensitive segments like small cars and sedans.
- Alternative Suppliers: Ford and GM could partner with alternative suppliers to reduce their dependence on Chinese and Mexican operations. This could involve sourcing parts from other countries or regions that are not subject to the same tariffs.

Operational Efficiency and Cost Structures

The tariffs on imported steel and aluminum have increased the costs of these raw materials by 20–25%. For GM and Ford, which heavily rely on these imports for vehicle production, this translated to millions of dollars in added costs annually. This increase in production costs directly threatens profit margins, particularly on vehicles that operate with lower profit margins, such as sedans, which were already facing declining sales in the U.S. market.

Potential Gainers and Losers

While Ford and GM are poised to benefit from the tariffs, other sectors and companies are likely to suffer. Retail stocks, such as Costco Wholesale Corp. and Walmart Inc., which traditionally formed most of their margins by arbitraging Chinese wholesale versus U.S. domestic retail prices, are expected to lose out. Similarly, PC, server, and phone equipment manufacturers like HP Inc., Cisco Systems Inc., and Apple Inc. will also feel the heat because many essential parts have been delivered from China for decades.

Conclusion

The increased demand for Ford and GM vehicles due to tariffs could have a positive impact on their long-term market share and competitive positioning within the U.S. automotive industry. However, they will need to adapt to the new market conditions and potentially invest in new technologies or production methods to fully capitalize on this opportunity. The tariffs present both challenges and opportunities for the automotive industry, and it remains to be seen how these changes will play out in the long term.