U.S. automotive stocks are taking a significant hit this morning after President Donald Trump announced a 25% tariff on all imported vehicles.
Ford (F) shares are down 2.6% as of this writing while General Motors (GM) shares are down 7.1%.
Is Ford or GM Stock Worth Buying on the Pullback?
Arguably, the new administration’s trade policies stand to hurt GM more than Ford Motor. That’s because the latter currently makes about 80% of its vehicles in the United States.
In comparison, its larger peer makes only 55% of its vehicles domestically.
That said, neither Ford nor General Motors look particularly attractive to own amidst higher tariffs, as the subsequent increase in costs will aggressively cut into their profits moving forward.
In fact, Trump tariffs could effectively eradicate all profits for Detroit’s “Big Three,” according to UBS analyst Joseph Spak.
Tariffs Could Lower Ford and General Motors Vehicles Demand
Hypothetically, the legacy automakers could switch to domestic production to navigate new tariffs. However, the higher cost of wages for U.S.-based workers casts doubt on the viability of that alternative.
Production workers in the auto industry are paid about $30 an hour in the United States – sharply more than just $3 in Mexico.
All in all, higher tariffs mean the legacy automakers like Ford and General Motors will have to increase prices this year, which may result in significant pressure on demand for their vehicles.
That’s why Dan Ives, a senior Wedbush analyst, called tariffs a “hurricane-like headwind” for the Detroit automakers in his recent research note.
Earnings Estimates Make Ford and GM Unattractive
Macroeconomic headwinds, including tariffs and fears of a recession ahead, are expected to start weighing on Ford and General Motors earnings from the current quarter.
Ford’s earnings are expected to crash more than 100% in the quarter ended March, while its larger peer, GM, is seen growing its earnings a measly 0.38% only in Q1.
