Shares of U.S., Asian and German automakers tumbled on Friday after President Donald Trump threatened to slap tariffs on imports from Mexico starting next month, potentially upending a decades-old business model of global manufacturers.
This story appeared in Automotive News.
Railing against a surge of illegal immigrants across the southern U.S. border, Trump said he would hit all goods coming from Mexico with a 5 percent tariff and would increase the duty each month until it reaches 25 percent on Oct. 1, unless Mexico takes immediate action.
The duties could hit a number of global companies – including American, European and Asian companies – with the auto industry looking particularly vulnerable. For years carmakers have built vehicles in Mexico, taking advantage of its cheap labor, trade deals and proximity to the U.S., the world’s largest auto market after China.
General Motors, with output of 834,414 vehicles and exports of 811,954 cars and light trucks in 2018, is the largest automaker in Mexico, with 14 manufacturing sites.
The move by the White House also looks also likely to backfire on U.S. consumers, driving up the prices of goods as varied as cars, refrigerators and television sets.
“Margins are so thin in the U.S. market right now that there’s no way that any automaker is not going to pass on these tariffs to their customers,” said Janet Lewis, an analyst at Macquarie Securities. “The unknown factor is the impact on suppliers, as components can move back and forth between Mexico, the U.S. and Canada up to 20 times before they make their way into assembled cars.”
However, other analysts said tough competition and slowing demand for vehicles would likely force manufacturers to eat much of the added cost. That in turn could force more cost-cutting by auto sector manufacturers.
“If these tariffs are enacted, everyone loses,” Jessica Caldwell, executive director of industry analysis at Edmunds, said in an e-mail. “Trump talks a lot about supporting the U.S. auto industry, but the Detroit automakers will be hurt the most by this. Profits from vehicles like the Silverado keep GM’s lights on, and if you start to put that at risk, it could be disastrous considering they’re already in cost-cutting mode.”
