Auto industry faces 3 possible paths as tariffs take effect—report

Now that the 25% tariffs have been enacted on Mexico and Canada, the auto industry is getting a clearer assessment of the potential impact associated with the levies.

The details: An in-depth report recently released by S&P Global Mobility details three probable scenarios, including “A Quick Resolution,” “Extended Disruption,” and a “Tariff Winter,” and how each could disrupt the North American auto industry. 

• S&P Global Mobility projects that there is a 30% probability that the tariffs will only last 0 to two weeks (A Quick Resolution), which could disrupt one-third of production, equating to more than 20,000 vehicles a day.

• There is a 50% chance that the tariffs could last six to eight weeks (Extended Disruption), which could lead to product development delays. Most sales and production would be compensated for in 12 months in this scenario.

• There is also a 20% probability of the direst scenario (Tariff Winter) in which the levies become part of the long-term auto trade structure, leading to a 10% decline in U.S. auto sales for several years.  

Worst case scenario: In the case of a Tariff Winter, OEMs and suppliers will only invest capital and resources if there is long-term stability in the trade and source planning environment, with a Tariff Winter presuming some level of stability, even at higher costs. That could lead to the delay of future vehicle programs, especially given the uncertainty of other factors, such as emissions regulations.    

Between the lines: The on-and-off uncertainty and changing parameters of the tariffs continue to be one of the biggest issues for the auto industry and the economy overall, which is apparent in Thursday’s stock market report.          

• The S&P 500 dropped 78 points on the day, or 1.4%, to close at 5,521, with the index now down roughly 10% from its high of 6,147 on Feb. 19, putting it in “correction territory.”  

• The Dow Jones Industrial Average fell 537 points, or 1.3%, while the Nasdaq Composite, which is also in correction, sank nearly 2%.

Why it matters: S&P Global Mobility’s 30% probability that the 25% tariffs on Canada and Mexico will not last more than two weeks is discouraging news for any stakeholder in the auto sector. And the unpredictability of President Trump’s moves regarding the levies (evident in a recent threat of 200% tariffs on European wine and spirits) continues to sound alarm bells.

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