Auto Industry Faces Setback as GM and Ford Brace for Tariff Fallout
Car stocks took a hit on Monday following the announcement of new tariffs by former President Donald Trump over the weekend, triggering a potential trade conflict. General Motors (GM) saw its stock drop before recovering some losses after the U.S. government announced a temporary pause on tariffs for Mexico.
GM Faces the Biggest Risk
Among U.S. automakers, GM stands to face the most significant financial impact due to its substantial production footprint in Canada and Mexico. With a larger share of its vehicles manufactured outside the U.S. compared to competitors, GM is particularly vulnerable if the tariffs become permanent, according to industry analysts.
Impact of New Tariffs
The newly imposed tariffs target imports from Canada and Mexico, potentially disrupting established global supply chains and causing factory shutdowns. Virtually all major automakers in the U.S. operate at least one manufacturing facility in Mexico, relying on imports to fulfill domestic demand.
On Saturday, Trump announced a sweeping tariff package, placing a 25% duty on goods from Canada and Mexico. Additionally, Canadian oil imports will face a 10% tariff, while Chinese imports will also be taxed at 10%. The administration tied these measures to efforts aimed at curbing illegal immigration and halting drug trafficking, particularly the influx of fentanyl.
Trade partners responded swiftly. Canada countered with a 25% tariff on American imports, set to take effect on Tuesday. Mexico also hinted at retaliatory measures but withheld specifics. However, on Monday, the U.S. agreed to suspend tariffs on Mexico after its President, Claudia Sheinbaum, committed to deploying 10,000 troops to the border to address drug smuggling. For now, tariffs on Canadian and Chinese imports remain in effect.
Automakers Brace for Earnings Hit
RBC Capital Markets analysts outlined the potential financial toll of the tariffs on the auto industry.
“Our worst-case scenario suggests a lasting Canada-Mexico tariff could result in double-digit earnings declines for GM, Ford, and Stellantis,” RBC analyst Tom Narayan noted.
GM, which produces approximately 1.1 million vehicles in Canada and Mexico annually, could see a 21% drop in earnings if a 25% tariff remains and production is not relocated. Ford could experience a 15% decline, while Stellantis might face a 12% reduction. European automakers such as Volkswagen (9%) and BMW (5%) could also suffer losses.
Suppliers, including Magna and Aptiv, may struggle more than automakers due to the complexity of shifting production, Narayan added.
However, RBC’s projections assume the tariffs will be permanent and that costs won’t be passed on to consumers. Investors remain hopeful that negotiations between the countries will lead to a resolution, making the tariffs temporary.
The previous round of tariffs during Trump’s first administration significantly raised costs for automakers and negatively impacted their earnings.
Stock Market Reaction
GM stock initially fell to 46.37 before recovering to close at 47.89, a 3.2% decline. Ford and Stellantis also saw declines but managed to trim some losses. Meanwhile, Magna’s stock dropped 6.3%.
Ford’s stock continues to trade below its 50-day moving average, a level it fell beneath last July following an earnings miss.
Industry Response
Most automakers have not immediately responded to the latest tariff escalation. However, United Auto Workers (UAW) President Shawn Fain criticized the move, stating that while the union supports protective tariffs to bolster American manufacturing, they should not be used as leverage in immigration and drug enforcement policies.
GM CFO Paul Jacobson, in a recent earnings call, indicated that the company has strategies in place to respond to tariff changes.
Ford is set to report its latest earnings on Wednesday, following a Monday announcement revealing a 6% decline in U.S. auto sales for January, with demand for gas-powered SUVs such as the Edge weakening.
European Tariffs on the Horizon?
Trump has also hinted at extending tariffs to the European Union. Volkswagen responded by emphasizing the need for diplomatic negotiations to avoid trade disputes. The automaker had previously warned of potential plant closures in Germany due to weak demand in Europe and China, though a compromise was reached with labor unions to mitigate the impact.
As tensions escalate, the auto industry remains on edge, bracing for potential long-term consequences stemming from the ongoing trade conflicts.
