Car stocks reeled on Monday after new Trump tariffs over the weekend ignited a tit-for-tat trade war. GM stock sank but pared losses after the U.S. said tariffs on Mexico would be paused for a month.
General Motors, which produces more vehicles in Canada and Mexico than major rivals, faces the sharpest potential hit to earnings if Trump tariffs become permanent, one analyst said.
Trump Tariffs 2.0
New tariffs on imports from Canada and Mexico are expected to disrupt global automotive supply chains and possibly lead to plant closures. Nearly every major automaker in the U.S. has at least one factory in Mexico, relying on imports from that country and other countries to meet American consumer demand.
On Saturday, President Donald Trump imposed additional new tariffs — 25% on goods from Canada and Mexico, with a lower rate of 10% for Canadian oil, as well as 10% on imports from China. The new Trump administration demanded those countries combat illegal immigration and drug flow, including deadly fentanyl, across the border.
The response from trade partners was swift. Canada said it would impose tariffs of 25% on American imports starting Tuesday. Mexico also signaled retaliatory tariffs without offering details.
But on Monday, the U.S. halted Mexico tariffs after that country's President Claudia Sheinbaum agreed to immediately send 10,000 soldiers to the border to prevent drug trafficking. The tariffs on Canada and China seem to be proceeding for now.
Potential Hit To Automaker Earnings
On Monday, analysts at RBC Capital Markets sized the potential hit to auto earnings from the new Trump tariffs.
"Our worst-case scenario suggests a permanent Mexico-Canada tariff could result in double-digit earnings hits" to General Motors, Ford and Stellantis, RBC analyst Tom Narayan said in a note to clients. Stellantis is the parent company of Fiat and Chrysler.
For GM, which produces around 1.1 million vehicles in Canada and Mexico, "a permanent 25% tariff would result in a 21% cut to earnings should the company not shift production to the U.S.," he added.
By comparison, Ford faces a 15% cut to earnings, Stellantis 12%, Volkswagen 9% and BMW 5%, the note said.
Tariffs could be more challenging for auto suppliers such as Magna and Aptiv. "Shifting production is far more difficult vs. the OEMs," Narayan said.
However, the RBC-estimated hit to auto earnings assumes tariffs become permanent and that tariffs are not passed through to consumers. Investors expect "some deal" among the countries, which would make the tariffs short-lived, Narayan said.
A previous round of tariffs under the first Trump administration raised costs sharply for automakers and hurt their earnings.
Car Stocks, GM Stock Trim Losses
Shares of General Motors sank as low as 46.37 on the stock market today before trimming losses to 47.89, down 3.2%. Ford and Stellantis also shaved losses on Monday. Magna stock sank 6.3%.
Ford stock remains below the 50-day moving average. It tanked below that level on earnings last July.
UAW Reacts, GM Has 'Playbook' To Respond
Most car companies did not immediately respond to the additional new tariffs. But United Auto Workers President Shawn Fain said in a statement that Trump's move was the wrong way to use tariffs.
"The UAW supports aggressive tariff action to protect American manufacturing jobs as a good first step to undoing decades of anti-worker trade policy," the statement said. "We do not support using factory workers as pawns in a fight over immigration or drug policy."
On an earnings call last week, GM CFO Paul Jacobson said that the company has a "playbook" for responding to tariffs.
On Wednesday, Ford will report earnings after the market close. On Monday, Ford reported a 6% drop in U.S. auto sales for January, led by falling demand for gas-powered SUVs like the Edge.
EU Tariffs Next?
Over the weekend, Trump signaled tariffs on the European Union would be next.
Volkswagen responded that it is counting on talks to avoid trade wars. It already warned last year of plant closures in Germany to cut costs amid weakening demand in Europe and China, though it eventually worked out a deal with unions.
Please follow Aparna Narayanan on X @IBD_Aparna for more coverage.
