The auto industry, unlike other businesses, is a complicated business involving dozens of players. A change in policy or tariffs makes it impossible to adapt plans and costly to kill them.
Mexico, Canada tariffs most likely to impact Americans
After a brief pause, President Donald Trump announced Mexico and Canada tariffs back on for early March, which could ultimately impact Americans.
- Automakers invest billions in technology and new products that take years to design and test, making changing them difficult.
The auto industry faces a predicament: Carmakers cannot simply pivot their business operations on a dime with each economic or political uncertainty, such as threatened tariffs or changes to emissions policies. To make big changes quickly is impossible in some cases and costly in most other scenarios.
Yet the world has been nothing but uncertain since President Donald Trump took office Jan. 20. He almost immediately threatened broad tariffs — the taxes paid on goods when they cross international borders — against all countries. Trump campaigned on promises to change emissions and environmental policies as well.
The unpredictability has meant Ford Motor Co.’s leaders are “spending a lot of time making sure that the administration understands the implications for our business,” Ford Executive Chairman Bill Ford said at a recent Crain’s Detroit Business event.
That’s particularly important now, given that Trump has said tariffs of 25% on Mexican and Canadian goods will take effect Tuesday. He is also threatening to impose an additional 10% tariff on Chinese imports that day. If enacted, the tariffs raise the likelihood that Mexico, Canada and China could impose retaliatory tariffs against the U.S., which can hurt domestic industries such as autos.
Industry-wide changes aren’t so easy for the industry
While most businesses plan for some amount of economic uncertainty, it’s not simple for the auto industry. Car manufacturers and parts suppliers make multibillion-dollar investments in plants, technology, equipment and new vehicles many years ahead of when the cars and trucks hit dealership lots. That’s because a lot of designing, testing and factory retooling is required in the manufacturing of the complex machines that transport us.
For example, Ford said in July it would invest $2.3 billion at its Oakville, Ontario, plant to retool it for Super Duty pickup production after scrapping electric vehicle plans there.
So threats to upend trade and emissions policies under which automakers made massive financial commitments create the prospect of economic chaos for one of the nation’s most vital industries.
“An auto company launching a new vehicle isn’t like a cereal company adding more marshmallows to a box of cornflakes,” said Erik Gordon, University of Michigan Ross School of Business professor. “It takes three to six years to develop a new car, and it takes the design, testing and integration of assemblies from many companies. If government policy changes in the middle of the process, years of work and tens of millions of dollars can go out the window.”
Gordon said a change in regulation that forces a change in just a couple of parts can cascade into changes in design of a lot of other parts from a lot of suppliers. When the rules keep changing, it makes intelligent long-term planning impossible.
“Most car companies would prefer tougher regulation that stays in place for eight years to easier regulation that changes every two years,” Gordon said.
The auto industry runs on its own timeline
Bill Ford said at the Crain’s event on Feb. 20 that he recently spoke with the president and that Trump is, “very, very focused on having a strong American industry across many industries. The difficulty for us, and when I say us, I don’t just mean Ford, but for the whole auto industry, is that our lead times are longer than political lead times.”
All major manufacturers of large durable goods require lead times that often surpass a four-year presidential term, sometimes even longer than two terms.
“We can adjust to almost anything as long as we know what that path is, but what’s really hard for us — the whole industry — is to get: start, stop, start, stop — when policy changes all the time,” Ford said.
Ford noted in the past 15 years the country has had a presidential cycle that has switched between Republican to Democrat and back twice.
“With each turn of the wheel, policies change, and that’s tough on us because we make many-year investments, we make billion-dollar investments in plants, equipment and technology,” Ford said. “Importantly, too, so do our suppliers.”
Ford is not alone. Stellantis Chairman John Elkann last week urged Trump to keep products built in Mexico and Canada “tariff-free,” according to Reuters. He said tariffs on those countries could significantly reduce Stellantis’ profits after the maker of Chrysler, Dodge, Jeep, Ram and Fiat is already struggling to recover from what it called a “rough” 2024.
General Motors CFO Paul Jacobson has said that the company is moving vehicles into the U.S. from foreign plants ahead of tariffs and would have to consider relocating production if tariffs are long-lasting.
“Those are questions that just don’t have an answer today, because I can tell you, as much as the market is pricing in a big impact of tariffs and lost profitability, think about a world where, on top of that, we’re spending billions of capital, and then it ends,” he said last month at a Barclays conference.
Inconsistent policy puts future products on hold
Consistency of policy is good for business and job retention because constantly changing requirements that force companies to scrap investments is not economically sustainable, said Sam Abuelsamid, vice president of market research at Telemetry Insights.
“Ford wrote off over $400 million in tooling for its Oakville Assembly plant last year when it decided to cancel a pair of three-row electric SUVs, and (it) will be left without a product in this segment that is growing with products like the Kia EV9 and Hyundai Ioniq 9,” Abuelsamid said.
As the Free Press reported last month, Ford has delayed the next generation of its F-150 gasoline/hybrid pickups for one year, sticking with the current generation until production now scheduled for April 2028. That delay is just one of many. As the Free Press exclusively reported, nearly all automakers are delaying or changing their product plans amid policy uncertainty surrounding the Trump administration and lower-than-projected demand for electric vehicles.
At the moment, experts said the industry is frozen, unable to make any definitive long-term decisions as it waits to see what Trump will do regarding tariffs — and how long they might last.
Looking at Trump’s tariffs so far
In February, Trump imposed a 10% tariff on products from China, citing China’s intellectual property theft and forced technology transfer as the reason for it. China hit back with a 15% tariff on imports from the United States. Trump also put a 25% tariff on all steel and aluminum imports to close a loophole that allowed some manufacturers to get around previous tariffs.
In addition to the 25% tariffs, Trump says he will impose Tuesday on Mexico and Canada, the president has also said he intends to impose tariffs “in the neighborhood of 25%” on imported autos, and similar tariffs on semiconductors and pharmaceutical imports, according to Reuters. He has said the levies on vehicles would come as soon as April 2. Trump believes the tariffs will drive manufacturers to move production to the U.S.
The president lashed out against a recent Wall Street Journal piece that outlined how Michigan’s auto industry would be damaged by tariffs. It noted comments from Ford CEO Jim Farley in February: “Let’s be real honest: Long term, a 25% tariff across the Mexico and Canada borders would blow a hole in the U.S. industry that we’ve never seen. Frankly, it gives free rein to South Korean, Japanese and European companies that are bringing 1.5 million to 2 million vehicles into the U.S. that wouldn’t be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever.”
In a Wednesday post on Truth Social, Trump defended his plan, writing: “The tariffs will drive massive amounts of auto manufacturing to MICHIGAN, a State which I just easily one (sic) in the Presidential Election. They have already stopped numerous new auto plants from being built in other countries, a GIGANTIC WIN (already!) FOR MICHIGAN, and the United States as a whole.”
But, again, it is not as simple as just moving production or building new plants.
“Moving an assembly location requires relocating tooling that can weigh many tons and finding new suppliers with the ability to make high-quality, high-volume components near the new plant,” said Sam Fiorani, vice president of global vehicle forecasting at Auto Forecast Solutions. “It takes years to set up an assembly line and coordinate the parts suppliers and train the workers. All of this happens so the vehicle manufacturer can return 6% or 7% profit on a $50,000 sale. More common consumer products make a few times more profit and are usually easier to make.”
For Ford, General Motors and Stellantis, the tariffs spell certain rising costs for the goods they use to make vehicles. All three companies build cars in Canada and Mexico that they sell in the United States. GM builds the Buick Envision in China and Ford makes the Lincoln Nautilus there. The Detroit Three also buy components from China for cars made in the United States, Canada and Mexico.
To shift some production to the U.S. is possible if there is excess capacity at U.S. factories, but to do so at a wide scale would require a hefty investment in time and money to build new factories. In short, the car companies have little wiggle room to offset the higher costs tariffs will bring. With the average transaction price for a new car at about $49,000, experts agree that consumers can’t absorb much of a price increase to offset automakers’ costs.
Patrick Anderson of East Lansing’s Anderson Economic Group predicted last month that tariffs could add $9,000 to the cost of some full-size SUVs, for example.
Why making a car takes years
The process to make a car doesn’t start at the front of an assembly line, but rather years earlier.
The modern car combines electronics, upholstery, climate controls and a powertrain with thousands of parts, Fiorani said. That requires “dozens or hundreds” of companies to give both expertise and to supply everything from the smallest part to large integrated modules for final assembly.
“There are many players harnessing the abilities of engineers and assembly workers to put together a dependable and safe piece of transportation capable of traveling at high speeds using relatively little fuel and spewing as few harmful pollutants as possible for hundreds of thousands of miles through years of service,” Fiorani said.
The government’s tightly regulated safety and emissions strandards over recent years make today’s vehicles the safest and cleanest in history, but, Fiorani added, “Harnessing all of the players in this project takes billions of dollars of investment with specialized factories and workers. Paying off these investments takes three or four years of a product’s lifecycle in the best-case scenarios.”
Abuelsamid added that modern vehicles also have increasingly complex software systems that take years to develop.
The entire process — designing, engineering and testing vehicles to meet all of these demands — takes years before it can even reach production, vehicle manufacturing expert Laurie Harbour said.
“Products need to go through conception and high-level design, and that takes place six to seven years before the launch of a new project,” said Harbour, a partner who covers the manufacturing sector at consulting firm Wipfli. “Once they get approval to the high-level design, it takes 24 to 36 months to refine the design, engineer and launch an all-new product.”
It’s a global industry
Harbour said it is quite difficult for automakers and their suppliers to plan and adapt when things are this uncertain because decisions made today could be undercut in three to six months.
The companies can adapt and make minor changes to product plans if federal policies change, but halting the development of an all-new product with new technology that is already set in motion is difficult and costly, Harbour said.
“The (automakers) have invested billions of dollars in R&D to develop new (electric vehicle) products because the administration back to Obama was pushing clean vehicles,” Harbour said. “Not to mention the rest of the world was pushing it.”
Since vehicles for global automakers are based on global platforms, the engineering was happening at a global level, Harbour said.
“As the administration changes and their agenda does not include clean vehicles, they have lifted these regulations,” Harbour said. “That said, the (automakers) continued their development because the globe was still focused on this direction.”
The problem for factories and suppliers
Not only do vehicles change, but automakers also must convert their assembly plants, which takes a couple years to complete modifications to the body shop, paint shop and assembly lines to support a new vehicle.
A typical new high-volume vehicle program costs at least $1 billion and takes three to four years minimum to complete, Abuelsamid said. The challenges only elevate when considering the Detroit Three’s transition from gasoline-powered to EVs, the development of self-driving technology and other software advances.
“It’s estimated that across the industry, somewhere around half a trillion dollars has been invested in the past several years to build or revamp factories and develop products,” Abuelsamid said. “In addition to the core products, an entire ecosystem of charging infrastructure, grid upgrades and new suppliers is required for it all to be successful.”
Another part of the process involves choosing parts suppliers and validating them. Then the automakers must coordinate the delivery of those parts throughout multiple levels of a complicated supply chain that could crumble like a house of cards at any moment, Abuelsamid said.
“You just have to look back at the semiconductor shortage to see that even missing a single component could bring the entire system to a standstill,” Abuelsamid said.
In 2021, a semiconductor chip shortage halted vehicle production for many automakers. The chips are used in a variety of vehicle components and the shortage was mainly the result of the COVID-19 pandemic when demand for small electronics rose with remote work. The chips were redirected from automakers for use in small electronics.
Get ready for higher prices all around
Harbour said if Trump makes changes to tariffs and other policies, it will affect overall prices global car companies pay for their parts and the price of the end product.
“Although it may drive reshoring of parts to the U.S., it will still raise prices when moving parts from southeast Asia or Mexico because labor rates and overall costs are higher,” Harbour said. “The concern is with increased cost of parts and vehicles, the consumer will purchase fewer vehicles because they are too expensive.”
As it is, new vehicle sales in the United States are pacing to be under 16 million for the year, far below pre- COVID levels of 18 million, Harbour said.
“Tariffs may be good in certain situations but, overall, someone has to pay for increased prices no matter where they are produced, and that will likely be the consumer,” Harbour said. “This means lower vehicle sales and that will reverberate through the supply chain.”
Ford admits it isn’t ‘immune to business flows’
The auto industry does have some sway in the political realm. A new study released in January by the Alliance for Automotive Innovation, the industry’s main U.S. trade group, said the industry drives more than $1.2 trillion into the U.S. economy each year, with 15.2 million new vehicles sold in 2023 and total sales that year of $643 billion. It notes every $1 added to the economy by motor vehicle manufacturing leads to the creation of $4.23 in economic value.
Bill Ford said the multiplier on one U.S. auto job is “greater than in any other sector. So it’s not just the direct job you create, it’s all the indirect jobs that go with it.” And while Ford is “the most American” car company because it produces more vehicles and employs more people in the United States than any of its competitors, “we are still not immune to business flows and particularly our suppliers are exposed to that.”
“I think this administration is acutely aware that it’s important to have a very vibrant American industrial base,” Ford said. “But they have to be aware of the implications of some of the decisions and we’re in the process of having those discussions and I feel very good about it, frankly.”
Jamie L. LaReau is the senior autos writer who covers Ford Motor Co. for the Detroit Free Press. Contact Jamie at jlareau@freepress.com. Follow her on Twitter @jlareauan. To sign up for our autos newsletter. Become a subscriber.
