Analysis: GM and other US automakers would be hit hard by Trump's tariffs By Reuters

By Cassandra Garrison, David Shepardson and Ben Klayman

MEXICO CITY/DETROIT (Reuters) – U.S. President-elect Donald Trump's plan to impose a 25% tax on all imports from Mexico and Canada could hurt the bottom lines of U.S. automakers, especially General Motors (NYSE:), and raise SUV prices. and trucks for American consumers.

GM leads the automakers that export cars from Mexico to North America. The top 10 automakers with Mexican plants collectively built 1.4 million vehicles during the first six months of this year, with 90% crossing the border to American buyers, according to the Mexican auto trade association.

Other Detroit manufacturers are also likely to feel the pinch: Ford (NYSE and Stellantis (NYSE ) are the top U.S. producers in Mexico after GM, whose shares fell on Tuesday, the day after Trump's tariff announcement.

GM is expected to import more than 750,000 vehicles from Canada or Mexico this year, with the majority built south of the border, according to business analytics firm GlobalData.

They include some of GM's most popular vehicles, including nearly 370,000 full-size Chevy Silverado or GMC Sierra pickup trucks and nearly 390,000 midsize SUVs.

GM's Mexican plants also build two of its critical new electric vehicles: battery-powered versions of its Equinox and Blazer SUVs. Those GM models and others are already in the crosshairs of another expected Trump policy: ending a $7,500 subsidy for electric vehicles, a move first reported by Reuters.

GM, Stellantis and Ford declined to comment on Trump's proposed tariffs.

Kenneth Smith Ramos, Mexico's former chief negotiator for the USMCA trade pact, said the move could hurt the United States as much as its North American trading partners.

“The United States would be shooting itself in the foot,” he said. The impact on the Mexican automotive industry would also be “very negative.”

GM employs 125,000 people in North America; A drop in sales of its Mexican-made cars could affect its profits for the entire region, which could put pressure on payrolls on both sides of the border.

The tariff increases would also serve as a reminder of the supply chains, which closely link the three members of the United States-Mexico-Canada Agreement. Mexico and Canada represent more than 50% of all auto parts exported to the United States, shipping almost $100 billion in parts. Imposing the tariffs would increase the costs of all vehicles assembled in the United States.

TARIFFS, DRUGS AND IMMIGRATION

The vast impact of Trump's tariff threats on Mexico and Canada raises questions about what the incoming administration is trying to achieve economically and the potential collateral damage to American businesses and consumers.

Trump presented the measure as punishment for the unrelated problems of immigration and trafficking of the drug fentanyl, and posted on social media that the tariffs would remain in place until Mexico and Canada stopped what he called an “invasion” of ” illegal aliens.”

The reference to drugs and migration has led some analysts to predict that the tariffs are more of a negotiating tactic than a genuine policy proposal.

“Given that the (social media) post makes explicit reference to the flow of people and drugs across the southern and northern borders, it suggests that this specific tariff threat is more of a negotiating tool than a source of revenue,” he said. Thomas Ryan, from North America. economist at Capital Economics.

“It leaves the door open for Canada and Mexico to come up with a credible plan over the next two months to try to avoid those tariffs,” he added.

Mexican President Claudia Sheinbaum called for dialogue with Trump and warned that the proposed tariffs made “no sense” and would worsen inflation and kill jobs in both countries. It also raised the specter of retaliation, although given its vast flow of exports to the United States, Mexico's economy remains more vulnerable to tariff threats.

In theory, Trump's import taxes could also prevent Chinese automakers from using Mexico as a way to avoid high U.S. tariffs on Chinese electric vehicles, but those imports are already effectively blocked by other U.S. trade barriers.

GM shares fell 8.2% Tuesday afternoon, while Stellantis fell 5.5% and Ford shares fell 2.6%.

BEATING CONSUMERS

Free trade with the United States, first in the form of NAFTA and then as USMCA, transformed Mexico's nascent automotive industry into the country's most important manufacturing sector and the model of its export prowess. But 30 years after the establishment of NAFTA, Trump has put all that on the line.

In the hypercompetitive world of car and truck production, a 25% tariff could harm a Mexican industry that has been integrating closely with the United States for years, the destination of almost 80% of all vehicles manufactured in Mexico.

Higher tariffs would also hit American consumers. While the company importing goods into the United States pays the tariff directly, that cost is inevitably passed on to the consumer through higher prices.

“That's how tariffs work. Although the (Trump) administration might want to say Mexico is paying… ultimately the consumer will bear this,” said Sudeep Suman, managing partner at consultancy AlixPartners.

This could affect many popular pickup trucks in rural America that voted overwhelmingly for Trump. Notably, the toyota (NYSE:) Tacoma, Ford Maverick, Stellantis' Ram, and GM's Chevrolet Silverado and GMC Sierra are made in Mexico.

GM could absorb some costs from its highly profitable pickup trucks, but other manufacturers that sell lower-cost vehicles like the Nissan (OTC:) Sentra could struggle to continue building profitable models, said Sam Fiorani, industry analyst at AutoForecast Solutions.

“Someone will have to bear that cost and that will go to the manufacturer or the customer,” Fiorani said. “All vehicles sold in the United States would be more expensive or significantly less profitable.”

The tariffs could also affect the cost of producing vehicles in the United States because many parts now come from Mexico. The Latin American nation accounts for 43% of all US auto parts imports, more than any other country.

Francisco Gonzales, director of Mexico's National Auto Parts Industry, said regional cooperation in North America reduces costs for customers.

Automakers “can't produce everything in one country,” he said, “because that makes it uncompetitive.”