New York
UJ
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Mark Fields, the former CEO of Ford, asserts that there is no escape from the impact of President Donald Trump’s auto tariffs for the automotive sector.
“Vehicle prices are bound to rise. It’s simply a matter of mathematics. The reality is that every vehicle will be affected by these tariffs,” Fields explained during a phone interview with UJ.
On Thursday, Trump’s 25% tariff on imported vehicles came into effect as part of his initiative to boost American manufacturing jobs. The administration is set to introduce tariffs on auto parts by May 3. According to Bank of America, a 25% tariff on all imported auto components could lead to an increase of around $26 billion in the cost of vehicles assembled in the U.S.—approximately $3,285 per vehicle on average.
Even vehicles produced in U.S. factories might see price increases, as many utilize numerous foreign components. Goldman Sachs predicts that tariffs could cause the costs of foreign-made cars to rise by $5,000 to $15,000 per vehicle.
Fields speculates that automakers might absorb some of the tariff costs while passing the bulk onto consumers through increased prices and fewer incentives.
It remains uncertain whether consumers can tolerate the impact of price hikes fueled by tariffs, particularly as car prices approach all-time highs.
“We believe that these price increases will lead to a decline in demand, especially as affordability has become a significant issue for buyers,” analysts from Bank of America noted in a client communication on Wednesday.
Should automakers pass the entirety of the 25% tariff onto consumers, predictions suggest that U.S. auto sales might plummet by approximately 3.2 million vehicles—around 20% of the current annual sales trajectory, according to Bank of America.
Analysts discovered that even if automakers aim just to break even by passing along only 15% of the tariff cost, auto sales would still see a decline of about 2.5 million vehicles.
The Wall Street Journal reported last week that Trump had a phone call earlier in March with automotive CEOs, warning them of further tariff hikes if they raise prices in light of the new import tariffs.
Trump denied to NBC that he pressured automakers to keep prices down.
“No, I never said that,” Trump told NBC’s Kristen Welker on Saturday. “I couldn’t care less if they increase their prices because consumers will start opting for American vehicles.”
Fields, the former Ford CEO, stated that it’s “unrealistic” to expect auto executives not to raise prices, branding it “another form of imposing price controls.”
Nevertheless, presidential threats can be somewhat ambiguous.
“It’s quite intimidating when the President of the United States states, ‘Just absorb the costs and let it affect your profits,’” Fields commented. “How do you quantify the potential ramifications of irritating a president? That’s hard to gauge.”
The White House claims that auto tariffs will significantly boost U.S. automotive production and jobs.
“This will result in the establishment of many new facilities, particularly in automotive manufacturing,” Trump stated during last week’s tariff announcement. “You’re going to witness employment numbers like never before… many individuals will be producing a multitude of vehicles.”
However, there’s a possibility that some U.S. jobs might be lost if the auto tariffs lead to a drop in demand, causing factories to slow down or cease production. Reports indicate that hundreds of employees at Cleveland-Cliffs steel have been laid off in Minnesota due to diminished orders stemming from the auto tariffs.
U.S. suppliers may need to reassess their supply chains if assembly operations in Mexico and Canada are interrupted due to tariffs. According to Bank of America analysts, tariffs on auto parts “heightens the risks to the supply chain and could lead to production halts.”
In an effort to attract buyers as tariffs take effect, Ford announced plans to offer employee pricing to all customers between April 3 and June 2. This pricing, which is set below dealer invoice rates, means consumers could potentially save thousands of dollars, thus offsetting a portion of the tariff-induced price hikes.
“We recognize that these are unsettling times for many Americans,” Ford stated on Thursday. “Whether it’s addressing the complexities of a changing economy or simply needing a dependable vehicle for your family, we’re here to assist. We’ve got ample inventory and a wide selection for customers in need of a vehicle.”
Nonetheless, Fields remarked that the auto tariffs will “certainly” push automakers to bring some jobs back to the United States.
According to Bank of America, automakers could mitigate their tariff expenses by relocating the assembly of roughly 1 million vehicles to existing U.S. plants.
However, relocating a factory isn’t a straightforward or rapid process. Retooling existing facilities can be time-consuming, and constructing new factories may take years and cost billions.
Bank of America forecasts that over the next five-plus years, numerous automakers might shift production to the United States if they are prepared to make “significant capital investments.”
Additionally, CEOs are unlikely to commit to these costly investments without a clear understanding of the future of tariffs, especially since Trump has a history of rapidly imposing or lifting tariffs.
“They need to evaluate costs and returns over decades. Yet it’s challenging for them to anticipate the next 10 minutes currently,” remarked Sean Tucker, the lead editor at the auto research firm Kelley Blue Book.
Another significant concern is whether enough labor exists to sustain the new and expanded U.S. auto factories, particularly considering America’s aging workforce and the ongoing immigration restrictions.
“Nobody is really addressing where the necessary labor will come from,” Fields remarked.
Fields recounted that even during the sluggish recovery from the Great Recession, Ford struggled to hire and retain labor.
“We faced challenges in finding qualified individuals who were willing to engage in the demanding, repetitive work on the factory floor and experienced significant attrition as many realized, ‘This is quite challenging,’” Fields stated.
Even if automakers successfully source workers, they will need to offer considerably higher wages compared to Mexico and provide enhanced benefits. Fields noted that this would lead to increased vehicle costs—expenses that manufacturers are likely to partially pass on to consumers.
Bank of America stated that, due to labor costs and availability in the U.S., it would be “practically impossible” to reshore most auto components.
The shift in production to the United States means automakers will likely favor abandoning lower-margin, affordable vehicles for higher-priced ones with greater profit margins. Consequently, this could make it increasingly difficult for Americans to access any vehicle at all.
“This situation will intensify the demand for affordable transportation,” analysts at Bank of America indicated, adding that more economical alternatives from Chinese manufacturers, such as BYD and Geely, could emerge if they produce domestically in the U.S.
Fields believes the ongoing tariff disputes and trade war will ultimately cost Western automakers in the long haul.
Ironically, the biggest beneficiaries may include some of Trump’s primary trade competitors.
“The Chinese manufacturers are poised to be the biggest winners,” Fields elaborated. “While Western automakers divert their attention to navigating these tariffs, the Chinese OEMs will focus on innovation.”
