Trump's 25% Vehicle Tariff to Slash Ford, GM Profits by 2025

U.S. President Donald Trump has declared plans to impose a "severe" 25% tariff on all imported vehicles and up to 25% on key automotive components. This policy is anticipated to significantly disrupt the U.S. automotive industry. As new car prices surge, automakers' profit margins are likely to shrink. Analysts suggest that purchasing a used car by 2025 might be a prudent decision.

The tariffs are set to take effect on April 2nd, with outcomes worse than initial expectations. Initially, Trump's plan targeted a 25% tariff on imports from Canada and Mexico, partly as a penalty for their fentanyl imports. Analysts estimate that a 25% tariff on vehicles and automotive parts could wipe out Ford and General Motors' profits by 2025. Morgan Stanley's Ryan Brinkman noted that both companies face "significant earnings risks" due to the severe tariffs, estimating an $820 billion increase in costs, equivalent to approximately $5,000 per new vehicle.

General Motors sources about 45% of its U.S. sales from foreign markets, primarily Canada and Mexico, while Ford imports around 20% of its vehicles. Overall, the U.S. imported over 7 million vehicles in 2024, with the majority coming from Mexico, Japan, South Korea, and Canada. Automakers are not the only entities affected; higher costs typically lead to higher prices, suppressing demand for dealers.

Morgan Stanley's Rajat Gupta stated that the 25% tariff on all imported vehicles and parts will negatively impact the automotive retail ecosystem in the short and medium term. Dealers also face challenges, as cost transfers could increase the average price per vehicle by around $5,000. The average price of a new car in the U.S. is approximately $48,000, while used cars average around $26,000. Gupta added that used cars will not face the same import tariffs, potentially widening the gap between new and used car prices. Better deals might be found in used car lots, and eventually, the situation will adjust. Inflation's impact on new cars is expected to quickly filter into the used car market in similar amounts.