S&P Global says auto industry has 1 week before massive production halt due to tariffs

• S&P Global Mobility said the ongoing global tariff war now puts the possibility of the auto industry experiencing an extended disruption period at a startling 50% probability.
• S&P Global Mobility sees potential for North American production to drop by up to 20,000 vehicles per day within a week.

S&P Global Mobility said the ongoing global tariff war now puts the probability of the auto industry experiencing an extended disruption period at a startling 50%. That would mean several vehicle models will cease production, new vehicle prices would have to rise and product development delays could impact production for some years to come.

That is one of three scenarios the respected automotive data, analytics and consulting firm laid out Thursday as it analyzed the impact so far from the uncertainty and volatility caused as President Donald Trump has changed tariff policy several times and countries have reacted with retaliatory tariffs as many times, all since Feb. 1.

In fact, S&P Global gives the industry one week before production starts dropping off at a whopping 20,000 vehicles per day.

"Although some contend that tariffs on the auto industry may boost U.S. manufacturing, only GM, Ford and Stellantis have excess capacity to increase U.S. production, and automakers are not likely to be able to make such a change quickly or cost-effectively," S&P Globals report said. "A production shift would also require suppliers to relocate."

In short, S&P Global Mobility rates the chance of a quick resolution scenario to tariffs at a mere 30% likelihood, given the recent state of affairs and ongoing fits and starts to the tariff war.

Given that most carmakers and their suppliers will invest capital only if there is long-term stability in the trade and planning environment, the ongoing uncertainty may delay development of future vehicle programs, especially with uncertainty around emission and fuel economy regulations, S&P Global stated. The Trump administration on Wednesday took steps to ease emission standards.

"With tariffs now imposed on Canada and Mexico, we expect significant disruption in the region. S&P Global Mobility sees potential for North American production to drop by up 20,000 units per day within a week," the report stated. "We now expect that the tariff posture, messaging and coverage through 2025 will be erratic, placing (automakers) and suppliers’ mid- or long-term vehicle and facility planning in a virtual gridlock."

A recap of where tariffs stand: For now.

S&P noted that the structure of the Trump administration trade agenda is questionable at this point. Trump seeks access to Canada’s mineral, power and water resources, while looking to curb mainland Chinese investment in Mexico.

For Canada and Mexico, Trump wants to renegotiate the United States-Mexican-Canada-Agreement, which he negotiated in 2018, by this fall. Trump also looks for relief from "perceived and actual tariff and non-tariff trade barriers globally," S&P said. 

The uncertainty for the auto industry started Feb. 1 when Trump signed three executive orders imposing major new tariffs on Canada, Mexico and China, effective Feb. 4. The orders included tariffs — the taxes importers pay on goods that cross over the international border — on auto industry imports from all three countries.  

Since then, Trump has increased tariffs on China to 20%. He has imposed tariffs of 25% on Canadian and Mexican goods, but has exempted auto industry companies that are compliant with the USMCA from the tariffs until April 2.

Trump announced that a 25% tariff on steel and aluminum imports from all countries would take effect on Wednesday. The day before this, in response to an Ontario tariff on electricity that was announced and then withdrawn, Trump announced an additional 25% on Canadian metals, which would have brought the tariff on steel and aluminum from Canada to 50%. Like the Ontario electricity tariff, this was canceled less than 24 hours after it was announced.  

Many impacted countries hit back. On Wednesday, Canada put new retaliatorytrade duties on $21 billion worth of U.S. goods, according to NBC News.

The European Union announced retaliatory tariffs Wednesday on $28 billion worth of a wide range of U.S. goods such as boats, motorbikes and alcohol, according to published reports.

China has signaled it is readying a response to the latest steel and aluminum tariffs. It has already put 15% tariffs on chicken, wheat and corn, and 10% on soybeans, pork, beef and fruit coming in from the United States. That means the Chinese importer pays more for those items, making the importer less likely to buy the product from a U.S. farmer. Or U.S. farmers will have to lower their prices to offset the tax for the Chinese importer, which dings profits.

Mexico has yet to respond and Australia will not retaliate with tariffs on U.S. goods, as its leaders said that would only raise prices for consumers, according to Reuters.

Which automakers are compliant with USMCA

In the midst of all this back-and-forth with tariffs, USMCA-compliant vehicles are exempt until April 2. But determining USMCA compliance for vehicles is complex, S&P Global Mobility's report said.

It said that for a car to qualify, 75% of vehicle content must be sourced from the U.S., Canada or Mexico, with additional requirements: 40% of core parts and 70% of steel and aluminum must be sourced regionally. Wage requirements also apply.  

S&P Global Mobility production data show that car companies assembling vehicles in Canada with engines and transmissions that are regionally sourced are more likely compliant. The report said General Motors, Toyota and Stellantis — which makes Chrysler, Dodge, Jeep, Ram and Fiat brands — have localized engine and transmission production. But Honda imports some transmissions.  

In Mexico, GM, Stellantis and Toyota have engine and transmission production, but others, such as Ford, face compliance risks. S&P's report said Nissan is likely compliant, and Mazda expects to be compliant despite importing transmissions. 

The report said Hyundai/Kia production in Mexico follows a similar pattern, making it likely compliant, but Volkswagen Group faces exposure with powertrains for the Audi Q5 imported. VW has localized engine and transmission production for U.S. exports of VW brand products, the report states.

BMW and Mercedes-Benz rely on European-sourced transmissions and engines, S&P's report stated, which makes them unlikely to be compliant with USMCA free-trade rules for their Mexico or U.S. production. The report noted that compliance may vary by trim level, depending on engine and transmission combinations. 

In light of all this, S&P Global Mobility has three scenarios describing how tariffs might impact the North American auto industry, based on the most recent developments. 

Three scenarios, two of them bad

• Quick resolution scenario: With the 25% tariff on Canada and Mexico in place and delayed tariff imposition for USMCA-compliant products, S&P Global Mobility sees a 30% probability for a quick resolution, which could take up to four weeks, it wrote. During this stage, expect some automaker production to be lost due to supply issues, border gridlock and near-term automaker production halts. In this scenario, lost sales and production can be regained. Border gridlock could a problem as customs agents adjust.
• Extended disruption scenario: The latest Trump action has raised the likelihood of an extended disruption to a 50% probability. That would mean the tariffs lasts 16 weeks to 20 weeks, and during this time, S&P said "several high-exposure vehicles will slow or cease production." S&P expects automakers to conserve inventory, replenish "tariffed" stock slowly, limit incentives and keep pricing strong to protect profitability. S&P expects new vehicle supplies will be restricted due to the significant production disruptions or stoppages for high-and mid-exposure vehicles, but production may resume after several weeks with "tariff accommodation and repricing of vehicles." In this scenario, a 25% tariff on all vehicle imports starting April 2 would impact 45% of US light-vehicle sales. S&P wrote: "Consumers will face rising costs on all goods, reducing available funds and willingness and ability for purchasing durable goods. We expect product development delays to have lasting effects into future years."
• Tariff winter scenario: The most dire scenario is a "tariff winter," which S&P Global Mobility places at a 20% probability. In this scenario, it said that "25% tariffs on Mexico and Canada are integrated long-term into auto trading and any resourcing from Mexico or Canada to the U.S. resulting from the high tariffs would create an environment of suboptimal sourcing, as vehicles and components currently produced in Mexico and Canada are currently in those locations due to cost and efficiency advantages." To move them to the U.S. ends those advantages and raises costs, but leaving them where they are also increases costs because of the tariff. 

In the last scenario, S&P Global said moving production to the U.S. to avoid tariffs could raise labor costs for manufacturing, worsen a general labor shortage and leave car companies and suppliers with underutilized plants in Mexico or Canada.

"Although some resourcing would occur, higher manufacturing costs could reduce North American light-vehicle sales by 10% for several years, with declines projected at 10% in the U.S., 8% in Mexico and 15% in Canada," S&P Global said. 

Sales will decline before a shift of production

Any proposed U.S. automotive trade and emissions legislation may combine with incentives, tax breaks and non-tariff barriers to encourage increased U.S. investment and employment, S&P Global wrote. It added that adjusting emission regulations would favor most consumers.

But most experts agree that the disruption to date has set up the industry to potentially see a sales dip as vehicle prices go higher.

“The North American auto industry has been working for 30 years in harmonized production and shipment of parts and vehicles across all three countries’ borders," Sam Fiorani, vice president of global vehicle forecasting at Auto Forecast Solutions, told the Free Press earlier this week. "Disrupting the price of those vehicles or parts from Canada and/or Mexico will only increase the price of vehicles and scare consumers away from buying them."

S&P Global's report indicated the firm still expects automakers to reaffirm a commitment to U.S. manufacturing in mid-term investment announcements, even possibly shifting production from Mexico, Canada and elsewhere to the United States. The Detroit Three all build products in Mexico and Canada and GM and Ford each build vehicles in China that are sold in the United States.

"Some of this will include previously decided, but unannounced, investment plans," S&P Global added in its report.

Jamie L. LaReau is the senior autos writer who covers Ford Motor Co. for the Detroit Free Press. Contact Jamie at jlareau@freepress.com. Follow her on Twitter @jlareauan. To sign up for our autos newsletter. Become a subscriber.