Canada’s Auto Industry Faces Shutdown Threat Amid Tariff Shock

“The auto sector is going to shut down within a week,” said Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association, who Bloomberg quoted about the weekend tariff shock announced by the Trump administration: A 25% tariff on imported goods from Mexico and Canada, with energy imports from Canada facing only a 10% tariff, and a 10% tariff on imports from China. 

Volpe warned that 25% tariffs, which go into effect at 12:01 am on Tuesday, will mean ”absolutely nobody in our business is profitable by a long shot.” 

A report from AlixPartners shows the tariff impact will be on about a quarter of the 16 million vehicles sold nationwide, along with parts and components that go into them. The firm said the US import market, valued at $225 billion, would see a $60 billion surge in costs—burdens ultimately passed on to consumers.

Bloomberg cited data from RBC that showed that General Motors, Ford, and Stellantis would sustain the largest earnings hit if the tariffs were prolonged. 

Shares of General Motors, Ford, and Stellantis were down 7.3%, 4.5%, and 5%, respectively, in premarket trading in New York. 

Wolfe Research analysts estimated that prolonged tariffs could increase new car prices by $3,000. Vehicles with the highest exposure to production and components sourced from Mexico and Canada would face the steepest price bumps. 

“It is going to be a lot of impact,” Aruna Anand, CEO of parts supplier Continental AG’s North American business, told Bloomberg. 

Anand asked, ”The question is who is absorbing the price and it becomes, are we able to absorb that price or is it going to be shifted to the end consumer?”

GM is the king of auto production in Mexico, followed by Nissan, VW, Stellantis, Ford, Kia, and Toyota. These automakers will face the steepest vehicle price increases if they pass the costs on to consumers.

Michael Robinet, vice president of forecast strategy for S&P Global Mobility, warned that automakers would cut production once tariffs go into effect: ”Automakers and suppliers would hold off on building high tariff products. We expect production and sales would go down.”

There are concerns that the tariffs could cause a recession in Canada and Mexico. 

Goldman’s Dan Dooling (EMEA Head of FX HF Sales) provided clients with a great summary of the trade situation unfolding from Saturday:

• Weekend Trump tariff announcements a surprise vs Friday’s close

• US effective tariff rate rises +7% from from Mexico & Canada proposals with a further 1% from China proposals

• 2.5% GDP hit in Canada, 3.5% in Mexico under full 25% tariff

• The 25% Canada and Mexico tariffs imply a 0.7% increase in US core PCE prices and 0.4% hit to GDP (US econ team had 0.3% core pce boost in their baseline)

In case you’re wondering, Cars.com’s ‘Most American Cars 2024′ list:

See this: “Huge Shock” On Wall Street After Trump’s Trade War: Goldman Hopes Tariffs “Short Lived” While Deutsche Warns Of Doomsday.