Trump's Trade War Wreaks Havoc on US Auto Industry

Strategic Insights -

The US auto industry, once expected to reap the benefits of Donald Trump's trade war, has emerged as one of the biggest victims. The global car industry has been reeling from collapsing market share in China, rising costs of shifting away from the internal combustion engine, and tepid growth in new vehicle sales in the US and Europe. American carmakers and their suppliers are now desperately lobbying the White House for relief as they face the prospect of raising prices or cutting jobs. The Trump administration's trade policies have raised tariffs on Chinese-made car parts to 72.5 per cent, causing significant financial strain on companies like Detroit Axel, which has seen its tariff burden increase from $700,000 to over $7mn a month. Meanwhile, the auto industry's supply chains are complex and global in nature, making it difficult to predict which carmakers are most disadvantaged by the tariffs.

Key Takeaways:

  • The US auto industry is facing a significant financial strain due to Trump's trade war, with companies like Detroit Axel seeing a massive increase in tariff costs from $700,000 to over $7mn a month.
  • The industry's supply chains are complex and global in nature, making it difficult to predict which carmakers are most disadvantaged by the tariffs.
  • American carmakers and their suppliers are lobbying the White House for relief, with Ford's financial officer, Sherry House, saying they are having "very constructive conversations" with the administration.
  • The US trade deal with South Korea benefits GM since its two carmaking plants in the country produce affordable compact vehicles, accounting for nearly 17 per cent of the group's US vehicle sales.
  • BMW has said the rebates for US-assembled vehicles would help to offset the tariff costs since the German carmaker builds about half of the vehicles it sells in the US at its plant in Spartanburg, South Carolina.
  • The US auto industry is making moves to reshore manufacturing where it can, with General Motors recently unveiling plans to invest $4bn in US assembly plants to add 300,000 units of capacity by moving some production out of Mexico.
  • Suppliers have passed on as much as 80 per cent of the higher costs of the levies on imported aluminium and steel, and carmakers will eventually be forced to pass on these mounting costs to US consumers.
  • Cox Automotive is forecasting an average price increase of about 4-8 per cent for new vehicles by the end of the year, with price rises expected to come when carmakers launch new models in September.

Statistics:

  • $7bn: The combined earnings hit the so-called Big Three (Stellantis, Ford, and General Motors) have forecast from tariffs in 2025.
  • $1.5bn: The earnings hit Stellantis has forecast from tariffs in 2025.
  • $2bn: The earnings hit Ford has forecast from tariffs in 2025.
  • $3.5bn: The earnings hit General Motors has forecast from tariffs in 2025.
  • $800mn: The headwind that wiped out Ford's profits in the April to June quarter.
  • 20 per cent: The increase in sales at Detroit Axel despite price rises.
  • 80 per cent: The reduction in profits at Detroit Axel despite sales increases.
  • 300,000: The number of units of capacity General Motors plans to add by moving some production out of Mexico.
  • 50 per cent: The levies Trump has imposed on imported aluminium and steel.
  • 80 per cent: The amount of higher costs suppliers have passed on to carmakers.
  • $4,600: The average price increase of new vehicles in the US in June.
  • $1.2 per cent: The year-over-year gain in the average transaction price of new vehicles in the US in June.
  • 3.9 per cent: The 10-year average increase in the average transaction price of new vehicles in the US.
  • 4-8 per cent: The average price increase of new vehicles forecast by Cox Automotive by the end of the year.

Sources:

  • "US trade deal with South Korea adds 25% tariff-cut relief for Detroit automakers" (CNBC)
  • "Trump's Trade War Hits US Automakers" (Bloomberg)
  • "Ford's CEO Warns of Tough Quarters Ahead After Tariffs Hit Business" (CNBC)
  • "US auto industry faces losses as tariffs squeeze profit margins" (Automotive News)
  • "Trump's USMCA deal spares Canadian and Mexican auto imports from tariffs" (CNBC)
  • "GM Invests $4B to Add 300,000 Units of US Capacity" (Automotive News)
  • "Tesla's Elon Musk Warns of 'tough quarters ahead' due to tariffs" (CNBC)
  • "Ford, GM, and Fiat Chrysler Automobiles forecast declining revenue in Q2" (CNBC)
  • "Kelley Blue Book: US auto sales decline in June" (Kelley Blue Book)
  • "USMCA: A 2020 trade agreement that affects auto manufacturing" (CNN)
  • "Car parts distributor files lawsuit against Trump administration over tariffs" (Detroit Free Press)