Why automakers' short reprieve from tariffs isn't enough to weather
Trump's escalating trade war
[March 07, 2025] By
ALEXA ST. JOHN
DETROIT (AP) — President Donald Trump's short reprieve for U.S.
automakers from stiff tariffs on imports from Mexico and Canada isn't
likely to allow enough time for those companies to make the changes
necessary to minimize the damage from Trump's intensifying trade war.
Trump granted a one-month exemption to 25% tariffs on vehicles and auto
parts traded through the North American trade agreement USMCA after
speaking with leaders of automakers Ford, General Motors and Stellantis,
the White House said Wednesday. Trump then broadened the exemption
beyond autos for Mexico and some imports from Canada on Thursday.
In response to concerns about the short timeline for auto companies,
White House Press Secretary Karoline Leavitt noted that Trump told the
companies to “start investing, start moving, shift production here.”
It's just not that simple.
Automakers “will be hit differently based on exactly where their supply
chain is,” said John Paul MacDuffie, professor of management at the
University of Pennsylvania. In particular, "GM and Ford have shrunk back
from a formerly much more global footprint, but they still are global
companies.
“Of course, if the goal is to move a lot of production to the U.S.,” he
added, “I guess you could. But I don’t see those changes happening
quickly.”
Automakers responded to Wednesday's news graciously. Ford said in a
company statement: “We will continue to have a healthy and candid
dialogue with the Administration to help achieve a bright future for our
industry and U.S. manufacturing.” Both GM and Stellantis thanked Trump
for the exemption in statements.
Matt Blunt, president of the American Automotive Policy Council, which
represents the three automakers, said he applauds the president "for
recognizing that vehicles and parts that meet the high U.S. and regional
USMCA content requirements should be exempt from these tariffs.”
But with only a monthlong grace period, automakers know challenges lie
ahead.
Why is this so hard for auto companies?
To be sure, as automakers spent decades expanding around the world, they
frequently battled supply-related woes and policy changes that hindered
production — and their bottom lines.
A disaster halfway across the globe impacting one tiny component, with
no easy or obvious supply alternative, can take down a vehicle's
production for weeks.
Contentious labor negotiations and work stoppages have put significant
pauses on automaking for the domestic car companies.
The COVID-19 pandemic also interrupted global supply chains and sent new
and used vehicle inventory to disastrous lows on dealer lots, causing
prices to skyrocket.
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President Donald Trump addresses a joint session of Congress at the
Capitol in Washington, Tuesday, March 4, 2025. (AP Photo/Ben Curtis)
 “At least automakers have seen some
version of this uncertainty,” said Hovig Tchalian, assistant
professor at the University of Southern California. “I think this
uncertainty is actually higher. But they’ve had some practice doing
it.”
Working in the favor of automakers are normalized and in some cases
high levels of inventory at dealerships; a healthy number of cars
yet to be sold provides a buffer to any slowdown in production.
But for years automakers and suppliers have kept a strategic amount
of parts on hand — enough to account for disruptions but not so much
that excess capital is tied up in components just sitting in
warehouses.
“What the 30 days will allow them to do is to analyze what kind of
work in progress they’ve got, what kind of parts stock that they’ve
got,” Martin French, partner at consultancy Berylls by AlixPartners,
said of automakers and their supply companies.
Generally there has been a lot of progress in U.S. manufacturing, he
said, “But the reality is that just does not happen in the space of
a couple of weeks.”
Compounding impact
Those disruptions and others throughout the business's history have
made it clear that automakers can only respond so quickly.
The tariff exemption is no exception, given the ever-increasing
complexity of assembly lines and manufacturing. Plants can't be
moved, factories can't be built and product lines can't be changed
overnight.
And even with this pause, steel and aluminum tariffs are still
expected to go into effect on March 12. Then, on April 2, Trump is
expected to set broad “reciprocal” tariffs to match the taxes and
subsidies charged by other countries on imports.
Those would disrupt the automotive industry quickly and
dramatically, said Sam Fiorani, an analyst at AutoForecast
Solutions.
“A substantial change in automotive free trade will hurt stock
prices of all automakers because their profits will take a hit and
consumers will face higher prices on vehicles, further diluting
sales going forward,” he said.
Not only do companies have to decide whether immediate changes in
production are realistic, but if they’re unable to do that
meaningfully, they might produce or sell fewer vehicles — sending
new car buyers to other brands or the used market — and, ultimately,
make less money.
“The uncertainty that’s being created for the auto industry is going
to inhibit investment as firms try to assess what the future looks
like,” said Brett House, a professor at Columbia University’s
business school, “and they have very little clarity on it.”
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