The implementation of President Trump’s 25 percent tariffs on imported vehicles, which began last week, is already creating ripples throughout the auto sector. Companies are halting shipments of cars to the United States, closing factories in Canada and Mexico, and laying off workers in Michigan and other states.
Jaguar Land Rover, a British automaker, announced it would temporarily cease exporting its luxurious vehicles to the U.S. Stellantis has idled factories in Canada and Mexico, which produce Chrysler and Jeep models, resulting in 900 U.S. employees losing their jobs due to the engine and parts supply chain disruption.
Audi, Volkswagen’s luxury brand, has also suspended car exports to the United States from Europe, instructing dealers to sell vehicles already in inventory.
If other manufacturers follow suit, the economic ramifications could be significant, resulting in increased car prices and extensive layoffs. The tariffs on vehicles represent the first wave of several industry-targeted levies that Mr. Trump is considering, and could provide initial insights into how businesses respond to his trade strategies, such as whether they will raise prices or boost manufacturing within the United States. Additionally, the president has expressed intentions to tax imports of pharmaceuticals and computer chips.
The new tariff on imported vehicles could lead to a significant spike in consumer costs, potentially adding thousands of dollars and sharply dampening demand for those cars. For certain Jaguar Land Rover or Audi models, the tariffs could exceed $20,000 per vehicle.
While the immediate effects of the tariffs have been disruptive, in at least one instance, Mr. Trump’s duties have successfully prompted increased production in the U.S. General Motors announced last week its plans to ramp up the production of light trucks at its Fort Wayne, Indiana factory.
The long-term consequences of the 25 percent tariffs remain uncertain. Many automakers are grappling with how to avoid steep price hikes that could alienate consumers from purchasing new vehicles. Investor sentiment is cautiously pessimistic, as shares of Ford, G.M., and Tesla have seen declines in recent trading sessions.
“Every entity in the automotive supply chain is focused on measures to mitigate the tariff affects on their financials and pricing,” stated Kevin Roberts, director of economic and market intelligence at CarGurus, an online automotive shopping platform.
However, car manufacturers have never faced such high tariffs with minimal notice nor encountered such unpredictability regarding the president’s next steps, according to analysts and dealers.
“The conventional strategies are proving insufficient,” remarked Lenny LaRocca, who heads the auto industry team at consulting firm KPMG.
Mr. LaRocca foresees automakers increasingly pivoting towards the production of larger, heavier SUVs and pickup trucks. These vehicles, many manufactured in U.S. facilities, tend to be more profitable and offer companies greater leeway to absorb the cost of tariffs rather than transferring them to consumers.
Many contemporary assembly lines possess the capacity to produce diverse models, providing manufacturers flexibility to concentrate on the most lucrative vehicles and phase out those that yield lower profits. Mercedes-Benz has indicated plans to utilize its Alabama facility’s flexible assembly lines effectively.
This approach, however, carries potential downsides. It may become more challenging for consumers to find reasonably priced new cars; the average price of a new vehicle is nearing $50,000.
Analysts agree on one point: Tariffs are unlikely to spur companies to open new factories or reopen shuttered plants in the immediate future. Businesses will refrain from making such substantial investments—hundreds of millions, or even billions, in new production capabilities—until they are assured the tariffs are a long-term fixture.
“I haven’t witnessed any major changes,” said Mr. LaRocca. “It’s a wait-and-see approach.”
Prior to Mr. Trump’s presidency, some car manufacturers and suppliers had already begun expanding their U.S. operations, often in response to challenges posed by the coronavirus pandemic, which highlighted the risks of depending on overseas factories for essential components. Other companies made substantial investments in factories focused on electric vehicles (E.V.s) or E.V. batteries to leverage incentives offered by the Biden administration.
For instance, German parts manufacturer ZF allocated $500 million last year to expand its facility in South Carolina, dedicated to producing transmissions for BMW and other automakers. Moreover, G.M. has opened two new battery production plants in the U.S. with partnering South Korean firm LG Energy Solution, focusing on the critical components for electric vehicles.
In the near term, some international manufacturers might entirely cease vehicle exports to the U.S. if they can no longer turn a profit or find more lucrative markets elsewhere. This scenario appears probable for Jaguar Land Rover, a company known for its luxury SUVs manufactured in Britain, which sells approximately 20 percent of its vehicles in the U.S.
If other automakers withdraw certain models from the U.S. market, consumers will face a dwindling selection of vehicles while those manufacturers remaining may gain the leverage to increase prices.
Thus far, however, the tariffs have not resulted in widespread price hikes for new cars. Last week, Hyundai Motor announced it would hold off on raising the manufacturer’s suggested retail price of Hyundai and Genesis vehicles until June 2.
It’s worth noting that dealerships may still adjust prices independently of automaker commitments. This occurred frequently during the pandemic when the availability of new vehicles was hampered by shortages in computer chips and various parts.
Reports from dealers and manufacturers indicate strong sales recently as consumers rushed to acquire vehicles before the tariffs took effect. The average duration a vehicle spent on dealership lots plummeted from 77 days at the end of January to under 50 days by early April, according to data from CarGurus.
Demand has surged particularly for Japanese brands like Honda, Subaru, and Nissan, likely because consumers perceive them to be imported, as noted by Sean Hogan, vice president of Sierra Auto Group, which operates a dozen dealerships in Southern California. While all three Japanese automakers do have production facilities in the U.S., they still import a portion of their vehicles.
An additional shock from tariffs is anticipated on May 3, when the Trump administration will extend tariffs to auto parts. This will affect not only imported vehicles but also U.S.-made cars, as virtually all cars incorporate foreign components, leading to increased repair costs as well.
“Informed consumers are certainly taking proactive steps to prepare ahead of the tariffs, which is a wise strategy,” said Mr. Hogan.
Nevertheless, he remarked that predicting the long-term implications of Mr. Trump’s trade policies remains challenging. “This administration acts swiftly, and the future is unpredictable,” Mr. Hogan added. “Brace yourselves.”
Contributions to this report were made by Neal E. Boudette and Melissa Eddy.
