In the wake of President Trump’s announcement of an additional 5% tariff on imports from Mexico, a new study shows that major Michigan auto manufacturers stand to lose billions in profit. The study also notes that industry giants such as General Motors, Fiat Chrysler Automobiles, and Ford would likely pass along the losses to consumers in the form of increased vehicle costs.
The potential losses could also spur further layoffs in an already unstable era for auto manufacturers. In May 2019, Ford announced the layoff of 7,000 employees, and in February 2019, General Motors announced it was cutting 14,000 jobs and closing four production plants in North America.
A Deutsche Bank Industry Update issued on June 1, 2019 warned that if automakers were forced to undertake the full cost of the now 25% import tariff, the annual profit loss would be $6.3 billion for General Motors, $4.8 billion for Fiat Chrysler Automobiles, and $3.3 billion for Ford.
If, as predicted, auto manufacturers pass the cost of the tariffs on to consumers, the average price-per-vehicle could increase by $2,400 for General Motors, $2,200 for Fiat Chrysler Automobiles, and $1,600 for Ford. According to LMC Automotive, Mexico-made vehicles comprise about 2.5 million, or 15%, of U.S. vehicle sales annually.
“Automakers may indeed see large financial impact and uncertainty from the tariffs, as all major (automakers) import a considerable portion of the vehicles they sell in the U.S. from Mexico,” the Deutsche Bank industry update said. “But U.S. automakers would be worse off than the Japanese and Korean (carmakers), particularly GM and FCA. We believe the high volume/content of full-size pickup trucks manufactured/sourced in Mexico and sent to the United States may surprise investors who typically think the only real exposure is passenger cars.”
Seeking retaliatory action against Mexico for what he perceives as its lack of effort to staunch the flow of people crossing into the United States, the President tweeted last week that he would impose the tariffs “until such time as illegal migrants coming through Mexico, and into our Country, STOP.”
Despite an impending threat from Republican lawmakers in Washington to block the measure, the tariffs are set to begin on June 10, 2019. And with the President blaming migration as the problem — an issue that has remained unsolved in Washington for well over 20 years — there is no concrete end-date for the tariffs.
“Tariffs will permanently remain at the 25 percent level unless and until Mexico substantially stops the illegal inflow of aliens coming through its territory,” the White House said in a statement.
The surprise announcement of retaliatory tariffs by the President sent a shockwave through auto industry, leaving its leaders startled about the potential ramifications, including further layoffs for an already struggling industry.
“Threatening to increase taxes on products American consumers and manufacturers buy from Mexico will raise costs and quickly threaten the jobs of tens of thousands of Americans here in the United States,” said John Bozzella, President and CEO of Global Automakers. “Rather than solving our problems at our southern border or improving the environment of the president’s recently negotiated USMCA, these new proposed tariffs only increase the uncertainty already faced by American autoworkers and other manufacturers.”