Leaders from two of Detroit’s Big 3 detailed how they will navigate the tariffs and other regulatory moves that one head described as causing “chaos” for U.S. auto manufacturers.
President Donald Trump on Feb.10 signed an order that would impose 25 percent tariffs on March 4, targeting imports of steel and aluminum. And as of now, the same percentage tariffs that were paused on imports from Mexico and Canada last month are set to go into effect two days later. Trump has stated previously that the tariffs are needed to stop the flow of fentanyl and immigrants into the U.S. as well as to help bring manufacturing jobs back to the states.
For Ford Motor CEO Jim Farley, implemented or threatened tariffs are adding “a lot of cost, and a lot of chaos” to the industry.
Farley’s Comments
Farley singled out Toyota (Japan) and Hyundai (South Korea) for importing hundreds of thousands of vehicles that have little to no duties.
“Let’s be real honest: long term, a 25 percent tariff across the Mexico and Canada borders would blow a hole in the U.S. industry that we’ve never seen,” Farley said on Feb. 11 at the Wolfe Research investment conference. “Frankly, it gives free reign to South Korean, Japanese and European companies that are bringing 1.5 million to 2 million vehicles into the U.S. that wouldn’t be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever.”
“There may even be a speculative part of the market where prices come up because the tariffs are even rumored,” Farley said. “So we’ll have to deal with it. That’s what I’m talking about with cost and chaos. It’s a little here, a little there, a couple weeks or a couple of months of vehicles crossing the border, components crossing the border, that’s going to be a tariff. This is what we’re dealing with right now.”
Mr. Farley Goes to Washington
The Ford’s CEO comments come on the eve of his visit to Washington to meet with members of Congress on the proposed tariffs as well as Trump’s efforts to unravel the Inflation Reduction Act (IRA).
He characterized the auto industry’s shift to electric vehicles (EVs) as a “global street fight” in as well as the gains Chinese automakers across various markets and intends to tell the leaders on the Hill now is not the time for disruption.
Beyond tariffs, Trump has stated he will not continue the $7,500 tax credit for buyers of electric vehicles which has helped automakers sell EVs. Additionally, the IRA includes the production tax credit, which allows a business to reduce taxes based on the amount of electricity it generates by solar and other qualifying technologies for the first 10 years of a system’s operation. Ford is building factories to take advantage of the production tax credit.
IRA Investments
“We’ve already sunk capital — even though we’ve rationalized it — into battery production and assembly plants all through Ohio, Michigan, Kentucky and Tennessee,” Farley said. “Many of those jobs would be at risk if big parts of the IRA are repealed.
“President Trump has talked a lot about making our U.S. auto industry stronger, bringing more production here, more innovation to the U.S. and if his administration can achieve that, it would be one of the most signature accomplishments ” he added. “But so far, it’s [been] disconcerting.”
GM: We Have a Plan
At the same conference, General Motors CEO Mary Barra believes the company can mitigate up to 50% of potential tariffs, ready to implement a contingency plan if tariffs are levied on auto parts and vehicles coming into the U.S. from the two neighboring countries.
“We are prepared,” Barra said. “When we know exactly what’s going to happen and/or even have an indication of what’s going to happen, we know the steps we could take.”
GM CFO Paul Jacobson added that if tariffs were prolonged, the company could take additional measures such as shifting production or parts or vehicles. GM has some operations in Canada, with more substantial production in Mexico. That includes many of its lower-priced electric vehicles as well as its highly profitable full-size pickup trucks.
Barra noted GM is tracking the impact of the steel and aluminum tariffs on its business as they source a “significant” amount of both from the U.S.
