The 25% rates imposed by the president of the US, Donald Trump, to Canada and Mexico have made the US automotive industry hurry to plan the gigantic tax burden on some of the best -selling vehicles in the United States, including full -size pickup trucks, while waiting for an agreement in Washington to be reached.
Hours after the rates came into force, the White House launched a lifeguard to the industry, saying that many vehicles made in North America would be exempt if they already complied with the complex rules of the agreement of the treaty between Mexico, the United States and Canada (USMCA), which came into force during the first Trump mandate.
“We are going to grant an exemption from one month for cars that arrive through the USMCA … so that they are not at a disadvantage,” said White House Secretary, Karoline Leavitt, to journalists on Wednesday. “The reciprocal rates will take effect on April 2.”
Trump suggested the idea of a 30 -day break for vehicles that complied with the USMCA in exchange for expanding production in the US during a call on Tuesday with the CEO of GM, Mary Barra, the CEO of Ford, Jim Farley, the executive president of Ford, Bill Ford Jr., and the president of Stellantis, John Elkann, said Reuters previously.
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Automobile manufacturers have expressed support to increase investment in the US, but they want certainty about tariff policies and vehicle emission rules before making drastic changes, two sources in the automotive sector said.
Ford, GM and Stellantis refused to comment on the meeting.
An agreement of this type could be a particularly welcome development for Pickup truck manufacturers, and for its main clients, which depend largely on the rural base of Trump’s republican voters.
Approximately one third of the Pickups sold in the US by US and foreign brands are manufactured in Mexico and Canada, according to research by Global Data.
The most emblematic US product is the backbone of the US automotive industry, providing large portions of sales and profits for General Motors, Ford and Stellantis, owner of Jeep and RAM truck brands. Automobile manufacturers, both from American and foreign brands, sold almost 3 million pickups in the US last year, approximately 20% of total national sales.
And pickup conductors have approximately twice as probabilities to say that they are Republicans than to say that they are Democrats, according to an August survey conducted by Edmunds, an information provider in the sector.
The pause in the rates gives the industry an additional respite to keep consumer prices stable due to existing inventories in the concessionaire lots. Rhett Ricart, Ohio dealership that sells GM and Ford vehicles, among other brands, maintains the hope of a quick agreement to avoid a crisis.
“I think it won’t take a month to find out how to handle this,” he said, speaking before Wednesday’s announcement. “I will worry more … within 30 days.”
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‘There is no other option’ to transfer the cost
Trump rates threats have caused car manufacturers and suppliers to analyze how they could avoid or absorb such taxes, and how much prices would have to increase for consumers. The answers to such complicated questions could vary considerably according to the car manufacturer and the exposure of their suppliers to manufacturing in Canada and Mexico.
Wolfe Research analysts projected that the rates would add about $ 3,000 on average to the cost of a vehicle, and around 7,000 to the imported models from Canada or Mexico. Full -size pickups have an average transaction price of about 65,000, according to January Cox Automotive data.
“Once the manufacturer begins to transfer that cost to us, we will have no choice but to transfer it” to consumers, said Jeff Tamaroff, president of Tamaroff Auto Group, who has Honda and Nissan dealers in Michigan.
Those additional costs would be added to the already high prices of vehicles, which began to rise abruptly during the Coronavirus pandemic and have not decreased much since then. The average sale price of a vehicle reached $ 48,641 in January, according to Cox Automotive data.
Among the Detroit brands, the Chevrolet and GMC pickups of GM, together with those of Stellantis such as RAM, are more exposed to Trump’s taxes than Ford because both manufacture large amounts of pickups in Mexico.
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Ford manufactures its Pickups of the F series in the US, but also produces some truck engines in Canada, which underlines the network of economic interdependence between the three commercial partners of North America.
Almost no American vehicle is made only with US pieces, according to industry research.
Banclays Bank analysts estimate that Mexico provides up to 40% of the pieces in US and Canada vehicles more than 20%. Suppliers say they will have to cover some of the costs of the rates and will probably suffer an additional blow if consumer demand weakens due to the increase in vehicle prices.
Automobile and suppliers manufacturers are also concerned about the effects of rates on the components of vehicles that cross borders before reaching their final destination. Companies fear that such pieces can be taxed at each border crossing, although Trump has not clarified their policy in such cases.
Let’s take truck transmissions manufactured by the German supplier ZF Friedrichshafen. Transmissions, which are used in RAM and others, include pieces that cross borders several times before reaching their final destination.
‘As bad as it may seem, it’s worse’
The trip begins in a factory in Mexico, which produces torque converters, a donut -shaped piece that transfers engine power to the transmission. The torque converters are then sent to a ZF installation in South Carolina that assembles the transmission. The finished transmission, including the torque converter, is then sent to Mexico again for installation in a RAM pickup, which then crosses the border again to reach a US dealership.
Around 30 other car and truck components follow a similar route in Zig-Zag through the border between the US and Mexico, said ZF.
“A rate on Mexico, in this particular case, or on Canada, will mean hundreds of millions of dollars as an impact” in the industry in general, said ZF President North America, Ramiro Gutiérrez.
Without important changes in production, the domino effect through thousands of individual car parts could reach 40,000 million at the end of 2025, according to Bernstein analysts.
“As bad as it seems, it is worse,” said Pat D’Eramo, executive director of Martinrea, a Canadian company that manufactures brake lines and other products. The company has manufacturing operations in the three countries of North America, with some products crossing borders several times.
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The American automotive industry, which for decades has enjoyed free trade between the US, Canada and Mexico, is now contemplating how to adjust supply chains if the commercial war continues, a potentially expensive perspective.
The US car manufacturers and their suppliers have invested billions of dollars to expand their footprint in the US and avoid rates since the Trump administration implemented the USMCA in 2020 to replace the North American Free Trade Agreement (NAFTA) of 1994.
Now, some industry executives say they are being punished for complying with Trump’s emblematic commercial agreement.
“This is a bonus for our importing competitors,” said Ford CEO Jim Farley, analysts last month about the new Trump Rate Threats, noting that some rivals import from Asian countries with few rates.
With Reuters information
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