Tariffs’ Winners And Losers In The Auto Industry

On Monday, President Trump confirmed his long-threatened intention: to levy 25% tariffs on Canadian and Mexican imports and double the Chinese tariff to 20% only weeks after February’s increase of steel and aluminum tariffs from 10% to 25%. These actions, of course, were mostly met with matching tariffs from the aforementioned countries (e.g., China imposed a 15% tariff on American farm exports, Canada retaliated with its own 25% tariff). “Our tariffs will remain in place until the U.S. trade action is withdrawn,” announced the stern Canadian Prime Minister, Justin Trudeau, “and should U.S. tariffs not cease, we are in active and ongoing discussions with provinces and territories to pursue several non-tariff measures.”

This flurry of political actions make economic predictions especially difficult – which has always been the hallmark of a Trump Administration – since any escalation might be temporary or just the beginning, but either way the far-reaching effects are even more problematic to forecast. Nevertheless, there are already a few winners and losers in automotive that are evident.

Winner: Used Car Sales

Tariffs are a tax on the consumer for a specific product to make them less desirable and, in some cases, protect domestic competitors from international price dumping. Approximately 1 in 4 of new cars are assembled in Mexico (14%) or Canada (9%), and nearly every new vehicle has steel (54% of an average vehicle’s weight) and aluminum (12%) with 23% of steel and 50% of aluminum being imported (e.g., China produces nearly 60% of the world’s aluminum). Tariffs will assuredly decrease the attractiveness of newly manufactured vehicles.

Additionally, consumer confidence in February fell the most since 2021, and tariffs are expected to continue that decline, which affects new car sales more than nearly all industries since “… purchasing a vehicle is a significant financial decision,” per CEO Weekly.

Enter used cars. The average price has fallen 3.3% over the past year, and its natural competitor shall likely veer in the opposite direction. Yes, interest rates are still high which kept used car sales at a modest 4.3% (16.8 million units) in 2024, but a drop in consumer confidence will likely spark the Feds to accelerate rate adjustments and, therein, boost used car sales.

Losers: General Motors, Stellantis and Ford

In 2024, General Motors produced the most light vehicles in Mexico: 889,072 or 22.3% of the nearly 4 million, per Statistica. Stellantis was the third most (419,426) with Ford closely behind (386,446). The state of Michigan alone imported “$46B in goods from Canada and $69B from Mexico” with most of it tied to the automotive industry. In recognition of this, all three stocks slumped on Tuesday in premarket trading: GM (4.6%), STLA (4.9%) and F (2.3%).

Such stock fluctuations certainly change daily, but a longer-term damage will be overcoming the Investment Tsunami repercussions faced by these same automakers: product enhancements like the Software-Defined Vehicle require cashflow, and the combination of dropping stocks and new vehicle sales will impact their ability to institute ubiquitous software updates to compete with the likes of Tesla.

The naïve consumer might imagine the traditional “Big Three” pivoting in Agile fashion, but automotive supply chains don’t permit daily changes, and other market conditions shall be in play. “US automakers will face higher production costs and disruptions to production,” states Ted Krantz, CEO of interos.ai, a supply chain risk intelligence company. “They may seek domestic steel suppliers to avoid tariffs, but it’s likely they’ll raise prices amidst increased demand, too. Automakers are stuck at a standstill as changing supply chains and manufacturing locations quickly proves to be extremely difficult.”

Winners: Merger & Acquisition Companies

As consumer confidence and new car production fall, new product development programs will be postponed or slashed, which shall impact the entire supply base. Lower volumes mean some suppliers – especially those already struggling from post-pandemic fluctuations – shall be ripe for acquisition.

There are a host of companies that thrive on buying low: holding companies, Merger & Acquisition (M&A) consultants, and assessment companies that “look under the hood” before following the advice of beancounting consultants. In a target-rich environment, M&A advisory corporations like Goldman Sachs ($671B in M&A deals in 2023) and Morgan Stanley ($111B in 2023) prosper, as well as investment banks like Jefferies and Moelis & Co.

As Forbes correctly predicted a surge of acquisitions in 2020-2021, 2025 will likely bring another round to the automotive industry, making both winners and losers in the end.

Losers: The Consumer

With many prices rising – even those outside of the auto industry – the ability to afford a vehicle shall diminish since the overall budget shall be spread thin. Additionally, as supply chain disruptions occur throughout the auto industry, costs shall be passed along to the consumer. Prices will rise. As written by Richard Stern and Andrew Hale of the Heritage Foundation, “… when tariffs are recklessly and arbitrarily applied, it can harm American families by imposing higher costs.”

Will these negotiations help the American consumer in the long run? That’s the $64,000 question.

Strike that. That’s the $64,000,000,000 question.