The U.S. automobile industry has indicated that vehicle prices will see a hike to the new tariff policy. With an additional 25% tariffs on products from Mexico and Canada and another 10% on China, automobile manufacturers will struggle to adjust production or rely on components from their manufacturing overseas facilities. Apart from Tesla, all leading automobile companies like Ford and General Motors have established operations in Canada, Mexico and even China.
Costs will eat into profits
Based on a report by the Detroit Free Press, analysts have warned that the automobile sector can absorb the additional costs from the tariffs for a limited time. They predict these tariffs to have a ‘negative impact’ on the industry and economy and lead to loss of jobs. Sam Abuelsamid, vice president of market research at Telemetry Insights, explained to the Detroit Free Press that engines produced in Canada and Mexico will now incur additional tariffs, even though the vehicles are assembled in the U.S. This will drive up the prices of engines and components.
Abuelsamid said that this tariff crisis will come down to people losing jobs as there are many small component players, who will not be able to absorb the high costs and relocate the plant to the U.S., which will lead to bankruptcy. Without mincing his words, Abuelsamid  said, “If the tariffs persist for any length of time, I expect it to lead to a recession within a year and an increase in unemployment.”
US automobile industry’s reaction
Honda is the first automobile company to begin transferring its production plans from Mexico to the U.S. as the company will manufacture the next-generation Civic in Indiana. Stellantis has come out saying that the tariffs give European and Asian manufacturers an advantage over them as the company’s brands like Jeep, Dodge, Chrysler and Ram are built in Mexico and Canada. In February last month, Ford CEO Jim Farley said that the 25% tariffs on Mexico and Canada would lead to chaos in the U.S. auto industry.
