- Imposition of Trump's 25% tariffs risks putting intolerable pressure on Detroit's carmakers, according to Barclays investment bank. If left in place, such high import duties would make their North American-centric businesses structurally unprofitable.
President Donald Trump’s tariffs on Canada and Mexico are so punitive, the Detroit Three carmakers could see, in a worst-case scenario, their collective profits obliterated entirely.
This is the dire prediction reached by analysts at investment bank Barclays, who took a helicopter view of the entire industry following news of the 25% import duties that took effect on Tuesday.
With one out of every four cars sold in the U.S. built in either of the two countries, they concluded the market has underestimated just how much damage tariffs could cause, estimating at least $3,000 in added costs per vehicle.
“Without any adjustment,” they wrote, citing price increases or production changes as possible countermeasures, “we estimate it could wipe out effectively all profits for the D3.”
That’s because designing, engineering, and developing safe and affordable cars is a difficult business with operating margins typically in the single digits. Such high import duties, if left in place, would make the business structurally unprofitable.
Stellantis did not respond to Fortune, while GM and Ford declined comment, directing requests instead to a statement from their lobbying association warning the tariff "will raise the cost of building vehicles in the United States and stymie investment in the American workforce."
Ford has however said recently it would take precautions ahead of the tariff imposition such as stockpiling, though this admittedly was only a stopgap measure.
Assuming tariffs aren’t a temporary bargaining tactic, for example to swiftly extract concessions from Canada and Mexico, the damage could be “devastating”, Ford CEO Jim Farley said last month.
“Given the potential for significant disruption ahead if the tariffs stick, we believe it’s a reminder as to why tariffs of this magnitude are unlikely to stick,” Barclays said.
Reducing them, while better, would still be bad news, though, it added: “Even if the tariffs are scaled back to something more modest (or are used to bring content back to the U.S.), it promises to add cost to vehicles, likely causing inflation.”
Elon Musk's Tesla safe after shelving Mexico factory plans
The Detroit Three typically generate the bulk of their profits in North America thanks to their complete stranglehold over the full-size pickup segment led by the Ford F-150, where they can set prices.
Ironically, this dominance is the legacy of a 25% tariff protections put in place in the 1960s to protect the domestic commercial vehicle market from foreign competitors. While it still exists to this day, it is exempted for trucks built in Mexico and Canada. That’s why GM’s largest full-size truck plant is in Mexico and why all of Stellantis’ heavy duty trucks like the Ram 2500+ are built there as well.
Elsewhere the trio have ceded ground either abroad in markets like China, India, and Europe or at home, for example in the less profitable sedan segments. A major disruption to their U.S. operations would hurt them in the region and truck segment where it matters most.
Most at risk from the Trump tariffs is Chevrolet and Cadillac manufacturer General Motors and Stellantis, the parent company behind Jeep and Ram, since over a third of their vehicles destined for sale in the U.S. are built in Canada and Mexico..
By comparison, EV manufacturers Tesla and Rivian would be far less affected since all their vehicles are manufactured domestically with only some exposure coming from the components side where parts are sourced from Mexico.
Tesla did at one point have plans to build a plant in Mexico, but CEO Elon Musk already flagged that construction had been delayed and would be shelved indefinitely in the event of a Trump victory.
On balance, tariffs offer zero upside for carmakers—best case is status quo ante
Foreign brand Honda appears to be the first carmaker seeking to prove it is red, white and blue. Reuters reported it has decided not to move forward with plans to shift production of its next generation compact Civic sedan from the U.S. to Mexico, which wouldn’t take effect until November 2027.
“Honda is coming,” Trump cheered on Monday, although it’s unclear whether he privately received any confirmation.
Typically it can take a good two years to erect a full-scale manufacturing plant. Many carmakers also maintain adjacent supplier parks where third parties directly feed parts that must be delivered to the assembly line exactly when they are needed.
While tariffs can quickly change the economic viability of a particular vehicle, constructing this kind of deep and complex value chain requires planning typically for well over a decade—enough for two product lifecycles. Tariffs could dramatically change over that timeframe.
While there could be some beneficial effects that arise from uprooting entire supply chains, on balance Barclays argues Trump’s tariff offers zero upside for the industry over the long term.
“The clear best-case scenario is if tariffs don’t stick and content requirements don’t change—essentially keeping the industry [at the] status quo pre tariffs.”
Late on Wednesday, the U.S. industry received welcome news from commerce secretary Howard Lutnick, who expressed confidence Trump might soon strike a deal with Canada and Mexico that could lower the 25% duty to something much less punitive.
"I think he's going to figure out 'you do more, and I'll meet you in the middle some way, and we're going to probably be announcing that tomorrow," he told Fox News.
