Tariffs on Auto Industry: Extended Disruption Now More Likely 

The activity of the week of March 4, 2025, further muddled US trade rules and tariffs. Tariffs were implemented, partially delayed within two days and are now set for full implementation on April 2—the same day Trump has said he will impose the first of many reciprocal tariffs on global trading partners.

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

In the interim, USMCA-compliant vehicles are exempt from the tariffs. Determining USMCA compliance for vehicles is complex. To qualify, 75% of vehicle content must be sourced from the US, 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 shows that automakers producing vehicles in Canada with engines and transmissions which are regionally sourced are more likely compliant because of that factor.  GM, Stellantis and Toyota have localized engine and transmission production. Honda, however, imports some transmissions.

In Mexico, GM, Stellantis and Toyota have localized engine and transmission production, while other automakers face compliance risks.  Nissan is likely compliant, and Mazda expects to be compliant despite importing transmissions.  

Hyundai/Kia production in Mexico follows a similar pattern. Volkswagen Group faces exposure with powertrains for the Audi Q5 imported but has localized engine and transmission production for US exports of VW brand products. BMW and Mercedes-Benz rely on European-sourced transmissions and engines, making them unlikely to meet USMCA free-trade rules for their Mexico or US production. Compliance may also vary by trim level, depending on engine and transmission combinations.

S&P Global Mobility has revised its three scenarios describing how these tariffs might impact the North American auto industry, based on the most recent developments.

The 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 has adjusted its outlook. We now see a 30% probability for a quick resolution, which could take up to four weeks.

During this stage, we expect to see some automaker production lost due to supply issues and border gridlock, as well as short-term OEM production halts. With a quick resolution, lost sales and production can be regained. Border gridlock could be a major factor, as customs processes will need time to adjust and improve efficiency.

The extended disruption scenario

The latest Administration action has increased the likelihood of an extended disruption period lasting 16 to 20 weeks, now estimated at a 50% probability of occurrence. During this time, several high exposure vehicles will slow or cease production.

OEMs are expected to conserve inventory, replenish ‘tariffed’ stock slowly and focus on protecting profitability by replenishing slowly, limiting incentives and discounts and aiming to keep pricing strong. Significant production disruptions or stoppages for high- and mid-exposure vehicles, along with OEMs optimizing non-tariffed inventory, will restrict supply.

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. 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.

The ‘tariff winter’ scenario

The more dire scenario is a tariff winter. S&P Global Mobility now places this at a 20% probability. In this scenario, 25% tariffs on Mexico and Canada are integrated long-term into auto trade structures. Any re-sourcing from Mexico or Canada to the US resulting from the high tariffs would create an environment of sub-optimal sourcing, as vehicles and components currently produced in Mexico and Canada are currently in those locations due to cost and efficiency advantages. Moving them to the US ends those advantages, increasing costs. Leaving them where they are also sees increased costs because of the tariff.

Moving that production to the US to avoid tariffs on the auto industry could raise labor costs for manufacturing, worsen a general labor shortage and leave automakers and suppliers with underutilized plants in Mexico or Canada. Although some re-sourcing would occur, higher manufacturing costs could reduce North American light-vehicle sales by 10% for several years, with declines projected at 10% in the US, 8% in Mexico and 15% in Canada.