As Detroit 3 automakers report tariff blows, experts say a trade deal is the only solution
The Detroit Three automakers are taking a big hit from the Trump administration's tariffs, and industry experts say only one thing can stop the bleeding for the North American auto industry — a trade deal with low tariff rates for the industry.
General Motors, Ford and Stellantis have all reported tariff impacts in the billions on recent earnings calls.
Ford said on Wednesday that it took an $800-million US (about $1.1 billion Cdn) hit for the second quarter as a result of tariffs.
Ford CEO Jim Farley said the company is in daily contact with the White House, with an ultimate goal of reducing its tariff costs, especially on parts tariffs. "We see there's a lot of upside depending on how the negotiation goes with the administration," Farley said.
This comes after General Motors said last week that tariffs cost the company $1.1 billion US (about $1.52 billion Cdn) in its second quarter. Chief financial officer Paul Jacobson said the tariff impact for the full year could reach $4 or $5 billion US, though GM is working to offset that with "manufacturing adjustments, targeted cost initiatives and consistent pricing."
"Over time, we remain confident that our total tariff expense will come down as bilateral trade deals emerge and our sourcing and production adjustments are implemented," Jacobson said on the company's quarterly earnings call.
On its own earnings call on Tuesday, Stellantis also said tariffs were having a major impact, and could add up to the tune of 1.5 billion euros (about $2.4 billion Cdn) this year.
Since April, a 25 per cent tariff rate on all finished cars going into the U.S. has applied, regardless of what country they're made in. But under the Canada-United States-Mexico trade agreement (CUSMA), that rate only applies to the non-U.S. content of a car.
So far, that cost hasn't made its way into car prices — GM said pricing "remains stable" for the second quarter, and added pricing assumptions for North America for the rest of the year are unchanged. Ford also said it expected net pricing to remain "flat."
Industry analyst Sam Fiorani said it isn't entirely surprising that companies are choosing to eat the cost of tariffs thus far.
"The car companies can't really push the tariffs through directly yet, because we're in this period of flux, we don't know what the end point will be," Fiorani said.
Raising prices by 10 or 15 per cent for now and then lowering them if tariffs come back down isn't an option, he explained, because any customers who just bought the car when it was at the higher rate would be upset with the change. If they do raise any prices, that would have to be longer term.
Autoworkers feeling the impactWhile folks buying cars have been spared the cost of tariffs for the time being, workers in the auto industry haven't been so lucky.
Lana Payne, national president of Unifor, which represents some 40,000 autoparts and assembly workers in Canada, says tariffs have resulted in lost work and investment within Canada.
In May, GM laid off 750 autoworkers at its Oshawa, Ont., plant when it cut a shift. Windsor's Stellantis assembly plant is also alternating between full production levels, a reduced schedule and full shutdowns throughout the summer. And Stellantis's Brampton, Ont., plant also paused retooling in recent months, with workers there recently telling media they were growing increasingly concerned about when work would resume.
"The carnage is building up," Payne said. "Pretty much across the entire auto sector, there has been an impact of some kind or another, depending on the facility and the community."
If tariffs on autos are here to stay, Payne says she expects more of these production cuts and pauses to pile up. That's why she says it's "crucial" that a trade deal between Canada and the U.S. sets tariffs on autos at zero — something she's been working to articulate to folks in government.
"We've been very clear to the government what our red lines are," Payne said. "Even though we're facing a deadline right now of August 1st … we're much better off having no deal than a bad deal that will result in a continued bleed of investment and jobs out of this country."
Only thing that will help is a trade dealWhile he doesn't have a prediction for Canada's trade deal, president and CEO of Global Automakers of Canada David Adams says he hopes the rate will be zero, at the very least for CUSMA-compliant cars and parts.
"The reality is that any tariff is problematic," Adams said. "If you start doing the math … you're talking, you know, billions [of] dollars per year in terms of the extra cost associated with the tariff."
At any rate higher than zero, he says automakers would slowly start to shift production to the U.S.
Adams says it won't necessarily be easy to strike an agreement, and that Canada should be very careful about what it puts on the table, given the free trade deal between the U.S., Canada and Mexico is up for review in 2026. So far, goods that are subject to that deal have been sheltered from any tariffs, which has helped Canada weather the tariff storm.
"We don't have a lot of cards to play, and we need to play the cards that we do have very carefully and strategically," Adams said.
Given that the European Union and Japan recently reached deals with the U.S. that will allow those countries to sell products to Americans at a 15 per cent rate, Fiorani says he expects cars and parts not covered by CUSMA might face a similar rate.
Fiorani said the deals with the EU and Japan are a sore spot for car companies and suppliers in North America, given that rates for cars coming from Europe or Japan are lower than the 25 per cent currently on cars from Canada.
"These are companies that have built their business case on shipping parts across the border. And now they're competing with vehicles that are coming from either the EU, U.K. or Japan, with potentially a lower tariff than they're currently applying to Canadian parts and vehicles," Fiorani said.
That said, Fiorani points out that the deals that U.S. President Donald Trump has struck so far are still "handshakes at best," as none of them have yet been signed on paper, which means that reality could still change.
In the long term, Greig Mordue, an associate professor at McMaster University in Hamilton, says putting any kinds of tariffs on the auto sector would be a dismantling of the last 60 years of North America's joint auto industry. And while that won't happen overnight, Mordue says Canada will need to find ways to distance itself from the U.S. in the long run.
He added that while the Detroit Three have been the focus of the auto sector in North America historically, they don't produce as many cars in Canada anymore. And of the 1.3 million cars made here in 2024, 533,000 were Toyotas and 420,550 were Honda models.
Given that, and the global shift from gas-powered cars to electric vehicles, he says Canada should try to find partnerships abroad.
"We can put our head in the sand and say … 'We gotta close the gates and make fortress North America," Mordue said. "Or we can recognize that the world is changing."
cbc.ca
