US-based automakers will advance domestic US expansion of cars and light trucks, as well as their components and parts. This is to reduce the impact of the 25% auto tariffs. According to sources, they are raising production at existing facilities that have additional capacity and exploring restarting idled facilities.
While new auto assembly plants, stamping plants and auto parts factories take years to bring online, existing production facilities are operating below capacity. This gives automakers avenues for manufacturers to expand production within the year, according to Ducker Carlisle’s managing principal Abey Abraham.
To the extent they succeed, it will drive increased demand for US-based steel products such as cold-rolled coil, galvanized steel sheet, cold-heading quality wire rod, and special bar quality steel, Abraham said.
“As a result, we don’t believe there is a single original equipment manufacturer [automaker operating in the US] that will keep current price status,” the automotive consultant told Fastmarkets.
The task of reducing foreign content is made all the more challenging because only half of light vehicles sold in the US are made in the US, while half of the components in those vehicles are imported, according to Abraham.
“No vehicles have all their parts sourced and produced in the US. Instead, there is a finely woven supply chain in the US, Mexico, Canada and parts of Europe and Asia,” Abraham said.
“Engines, transmissions and motors produced in Mexico and Canada that are installed in vehicles built in the US can be subject to a 25% tariff,” he added.
The USMCA exemption
While subject to change once Treasury Secretary Howard Lutnick devises a methodology for calculating tariffs on import parts, car makers in the US can currently avoid cross-border auto tariffs on parts made in Canada and Mexico if 75% of their parts are made in North America under the terms of the United States-Mexico-Canada Agreement (USMCA).
The White House has said it will impose the 25% auto tariff place on some parts by May 3.
Even if duties are levied, the full 25% additional cost is not likely to be passed along to consumers but will be subject to competitive supply chain dynamics. This will bring pressure on tier 1 and tier 2 suppliers to absorb part of the tariff cost, according to Abraham.
To avoid the tariffs, US-based automakers will advance domestic US expansion. They will shift supply chains into the US for vehicles made in America in the coming months, the consultant said.
What steps are automakers taking?
For one, General Motors told its employees in a webcast in the previous week that it is taking steps to increase production at its Fort Wayne, Indiana light duty truck assembly plant, and may potentially add over-time days for workers.
The company is also increasing production at light duty trucks at its assembly plant in Fort Wayne and potentially hire 225 temporary workers.
GM’s domestic US content is 54%, with 46% of content being imported from outside the US, according to the American University Kogod School of Business Made in America Index for 2024. Its 2015 GM cars had significantly higher 65% domestic content.
Ford Motor Company has taken a different strategy to address buyer concerns. It introduced pricing on April 2 through June 2 with an accompanying advertising campaign “From America, For America” to attract buyers into its Ford and Lincoln dealer showrooms.
Stellantis said on Thursday March 4 that they will match Ford with discounting pricing for its vehicles, while GM introduced discounts on some product lines in March.
Ducker Carlisle is currently advising clients, including OEMs, tier 1 and tier 2 suppliers, on how they might achieve significant gains in consolidating supply chains into the US.
“In the near term there are some simple things companies can do,” Abraham said, but cautioned that near-term consolidation is a challenge as moving any one part requires changes throughout the supply chain.
“A company could move equipment if they have the capacity and room to expand and relocate that equipment and can make sure they have a labor force ready to take on that work. This is a serious process that takes time. In the short time, there are costs associated with getting everything normalized. At the end of the day, the consumer has to a pay a little more [for a new car or light truck],” Abraham added.
Ducker calculates that US domestic production can be increased by 2 to 2.5 million cars and light trucks a year, translating a 20-25% increase over the current estimated production of 10 million vehicles a year.
“There’s room right in existing idled and under-utilized facilities in the US owned by automakers and their parts and component makers,” Abraham said.
The United Auto Workers union has identified a dozen underutilized Big Three plants that have lost 2 million jobs per year over the past decade.
“The economic benefits of filling these plants back up with product and good auto jobs would be enormous and have a cascading effect throughout communities from Michigan to Tennessee,” the union said on March 26.
Higher car prices
The 25% tariff could also dramatically increase car prices by $5,000 on the low end and $10,000-$15,000 on the high end, according to Wedbush Securities managing director Dan Inves in a note on Wednesday April 2.
“A US car with all US parts made in the US is a fictional tale not even possible today…In our view it would take three years to move 10% of the auto supply chain to the US and cost hundreds of billions with much complexity and disruption.” Ives said.
Cox Automotive estimates a lesser tariff impact of $3,000 for vehicles made in the US and $6,000 for those made in Mexico or Canada.
“USMCA compliant vehicles can get an exemption on the US content from imported vehicles,” such as a vehicle from Mexico, the tariff only applies to the non-US content,” according to a note published by UBS Global Research on April 2.
The UBS note, which was authored by Joseph Spak, Alejandro Nuno, Gabriel Gonzales, and Zachary Walljasper, also stated that Mexico and Canada are exempt from reciprocal tariffs.
“Currently the USMCA exclusion is in place for parts is in place, but it’s less clear if that will hold…Similarly, steel and aluminum are subject to 25% tariffs but this is not stacked on top of the reciprocal tariffs,” UBS said in the note.
“The way the executive order is written is that USMCA compliant parts are exempt until a process to only apply the tariff to the non-US content is established. But the way the executive order is written, the intention is to move to US content exemption,” UBS added.
UBS is also of the view industry and investors are hopeful that USMCA exclusion remains, and that the tariffs only force some ‘high value’ parts to resource to the US, according to the note.
US-based automakers may decide to potential lost sales from higher prices by designing and selling less expensive vehicles in the US with fewer of the bells and whistle that have driven car and truck prices higher, according to New York-based automotive expert and analyst Lauren Fix, who is also known as the Car Coach.
Stellantis pause in production draws criticism
Big Three automaker Stellantis, with American brands Chrysler, Dodge, Ram and Jeep, said on Thursday April 3 that it is temporarily laying off 900 workers at five stamping and power train plants in the US that supply parts to an assembly plant in Toluca, Mexico, and another one in Windsor, Ontario.
Stellantis’ decision to pause production drew criticism from Peter Navarro, White House senior counselor for trade and manufacturing, on Sunday April 6 in media reports, where he insisted that the company should be “dusting off” equipment and ramping up production to expand its operations. He also called Stellantis out for importing engines in its US models from Italy.
But Stellantis announced in January that it plans to invest $5 billion to reopen an assembly plant in Belvidere, Illinois to build a new mid-sized pickup truck. The UAW has said the plant will reopen in 2027.
The news of the automaker’s planned investment was highlighted during a visit to the White House where the company’s chairman John Elkan, met with US President Donald Trump and told him he was planning to further strengthen the company’s manufacturing footprint.
The automaker is also moving forward with plans to build the next generation mid-sized Dodge Durango sport utility vehicle (SUV) at its Detroit Assembly Complex and has also “committed to significant investment” in its Kokomo, Indiana.
According to UAW, Stellantis plans to build Phase II of the GME-T4 EVO engine starting from 2026, “reversing plans to move work out of this country” and has committed to “increased component production” at its Toledo, Ohio, machining plant.
Stellantis’ domestic US content for US-produced cars was 46% in 2024, down from 60% in 2015, according to the Made in America Auto Index,
Stellantis’ Italian brands – Fiat, Alfa Romero, and Maserati – are 100% made outside the US and could face the full brunt of the 25% tariff.
US dealers that sell Fiat, Alfa Romero and Maserati have more than a year’s supply of inventory due to low sales volumes over the past few years, according auto expert Fix. When they run out of non-tariffed inventory, tariffs may price them out of the US market and these brands “may disappear” in the US, she told Fox Business Saturday April 5.
The automaker has said its North American content is at least 75%, making it USMCA compliant, allowing the company to avoid paying a 25% tariff on parts shipped into the US from Mexico or Canada as long as USMCA-compliant pricing exemption remains in place.
Nissan to reduce production of Rogue SUV
Japanese financial newspaper Nikkei reported on Saturday April 5 that Nissan Motor is planning to reduce production of the Rogue SUV at its Fukuoka factory in Japan and increase production at its plant in Smyrna, Tennessee, as soon as this summer. Nissan also announced In January it planned to end one of the two shifts in Smyrna.
Hyundai plans billions in investment
South Korean’s Hyundai plans to invest $21 billion in the US, including a $5.8 billion steel plant in Louisiana to provide steel for electric vehicles to be manufactured at Hyundai’s two facilities in the US, one in Georgia and the other in Alabama.
The announcement was made on March 24 when Hyundai chairman Euisun Chung participated in a White House press event with President Trump and Louisiana Governor Jeff Landry.
Volkswagen investing in the US
German automaker Volkswagen is investing in the US and has set a goal of doubling its market share of US auto sales from 4% to 8 %.
The carmaker had previously announced North American investments of $20 billion, including $10 billion at its Chattanooga, Tennessee plant, $5 billion in a joint venture with Rivian and $5 billion to be invested its Scout Motors, which is a 2022 start-up that is expected to offer extended range electric vehicles.
Although Volkswagen has a major factory in Tennessee that employs 20,000 people, a lot of its North American production is based in Mexico.
Volkswagens manufactured in the US have 30% of their content made in the US, according to the Made in America Index. the 8.5% domestic US content in 2015.
Despite its low US-based content, Volkswagen says that its North American content meets the USMCA compliant qualification of 75%.
Audi and Porsche, which are both part of the Volkswagen Group, have said they may shift some production into the US to potentially avoid tariffs, according to reports in German business newspaper Handelsblatt.
Expanding footprints
While it has been reported Honda plans to build its next generation Civic hybrid in the US, Honda has not officially confirmed those plans.
Even so, Honda, like Volkswagen, has been raising its domestic US content for vehicles sold in the US, and now exceeds Ford, GM and Stellantis in domestic content second behind Tesla.
Honda’s US content is at 63% for 2024, up from 50% in 2015, according to the Made in America Index.
Tesla’s domestic content is 81%, the highest of major automakers, an increase from 77% in 2015.
Although lower than Honda and Tesla, Toyota and Nissan have increased domestic content since 2015, with Toyota rising from 27.5% in 2015 to 29% in 2024 and Nissan increasing from 22% to 24% in the same period.
Mercedes-Benz chief executive officer Ola Kallenius said during an earnings call on February 20 that he wanted to increase the company’s manufacturing footprint in the US.
“A little-known fact — we are one of the major industrial exporters out of the United States. Two-thirds of the vehicles that we make in our Tuscaloosa, [Alabama] plant actually go out into the world, a significant part of them obviously to Europe,” the CEO said.
German automaker BMW also faces potential costs from the auto tariff. Even though its Spartanburg, South Carolina plant is the company’s largest global factory, it imports parts from Germany and its low-North American content makes it non-compliant with USMCA rules of origin.
British carmaker Jaguar Land Rover told CNBC on Sunday via email that it is pausing shipments of its passenger cars and SUVs to the US for a month to assess the potential impact of US auto tariffs.
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