Trump tariffs: car makers struggle to mitigate loss of billions in profit

Car makers with exposure to the giant US car market are scrabbling for solutions to mitigate the predicated loss of billions in profits as a result of the sudden and highly punitive tariffs imposed by president Donald Trump. General Motors said it had “pulled out the Covid playbook” in a bid to reduce costs after predicting that it will take a $4-5 billion (£3-4bn) hit on profits this year. Meanwhile, the Volkswagen Group said it was looking to bring more production the US to offset a situation what analysts have calculated will cost €2-4bn (£1.7bn-3.4bn) of profit this year. Aston Martin and JLR have both paused shipments to the US after stuffing the market with models ahead of the tariffs starting. Mercedes-Benz has calculated the tariffs will wipe off three percentage points of margin, which, based on 2024 figures, could be as much as €5bn (£4.3bn). Meanwhile, Stellantis said it was taking actions “to protect the company in the short term”, including temporary shutdowns and layoffs. The raft of tariffs include a 25% duty on light vehicles vehicles coming into the US from all countries globally from 3 April. A similar duty will be applied from 3 May to foreign parts imported to fit to cars built in the US. Some relief will be given to those that produce cars in the US to mitigate the pain of ‘stacked’ tariffs, for example steel and aluminium tariffs hitting the production of parts made of those metals. Vehicle exports from Canada and Mexico will be tariff-exempt but only if they comply with the requirement to include a certain percentage of regional parts – a clause that German companies in particular are struggling to comply with. Meanwhile, China has hit US car imports with a retaliatory 140% tariff, pretty much ending a lucrative export business for high-margin vehicles from the likes of BMW, Ford and Mercedes. Ford said it had stopped shipping its F-150 Lightning to the country while Mercedes CFO Harald Wilhelm told investors on the company’s recent earning call that the tariffs hitting the US-built GLE and GLS heading to China were “prohibitive”. Trump’s tearing hurry to rebuild an incredibly complex and globally interlinked business in order to force more manufacturing to locate in the US has been described as a “mid-air disassembly” by one commentator. Meanwhile, car makers are throwing out parachutes to avoid the worst of the damage. On the recent round of earnings calls, analysts pressured car makers on possible ways they could mitigate the tariff impact, but again and again, CEOs and CFOs had to point out how much of a long-term process it is to rebuild production and supply chains. Volkswagen said it was “evaluating” options to make more models at its Chattanooga plant in Tennessee, but CFO Arno Antlitz warned analysts on the company’s first-quarter earnings that it was “too early to say” whether such a solution was possible. Of the 730,000 vehicles that the Volkswagen Group sold in the US in 2024, only around 200,000 of them were produced in the US, with about 290,000 coming from Mexico and about 240,000 coming from Europe. Of the Group cars produced in Mexico, only Volkswagen models from the vast Puebla plant are compliant with the United States-Mexico-Canada Agreement (USMCA), which sets a 75% minimum regional value content before waiving the tariffs. Audi Q5s made in the José Chiapa plant aren’t compliant, mainly because their engines are shipped from Germany. Like many car companies, Volkswagen has suspended its guidance (estimated financial performance) for 2025, saying it couldn’t properly assess the damage. Mercedes is another with a substantial production facility in the US, situated in Tuscaloosa, Alabama, where it makes big SUVs. But despite local production with a strong export focus (both key goals under the Trump regime), it will be hit hard. Along with the damage to exports to China, Mercedes will be hit by tariffs on engines sent to the US for SUV production to Europe. The same problem will also affect the US production of BMW, which at the time of writing hadn’t updated its financial position after the first quarter. “We have built up our internal-combustion-engine industrial structures in Europe over more than 100 years,” CEO Ola Källenius told investors. “To move them quickly to two other economic regions is probably prohibitive from a capital spending point of view.” Aston Martin said it would have to raise prices to cover at least part of the tariff increase, but others warned that doing so risked ceded market share to those not so impacted. “You can’t just push a button and say ‘okay, I have a tariff, let's just raise the price and everything stays the same’. That's not how market economy works,” Källenius said. The bigger hit on car makers either building outside the US or with higher proportions of imported parts help those car makers more localised in the US. “German lux brands are widely disadvantaged and so are the Koreans in the mid-level of the market,” John Murphy of investment bank BofA Securities pointed out in the GM analyst call. He suggested that Chevrolet and Cadillac could “lean into” the tariffs to take market share. GM CEO Mary Barra agreed with Murphy wholeheartedly, saying: “There is a huge opportunity for us to continue to build and leverage our product strength and the fact that these vehicles are built in the US and have the USMCA compliance." Stellantis is another sensing blood in the water. “We're looking at areas of opportunity where we have US-built vehicles that have very low impact from the tariffs against competitor vehicles that may be imported from places like Korea or Japan,” CFO Doug Ostermann said on its earnings call. Three out of every five cars Stellantis sells in the US is made there, Ostermann pointed out. All companies referenced the uncertainty ahead, particularly as the Trump administration keeps changing the parameters. The whole tariff picture could look completely different at the end of the year, making decisions extremely hard. “I think [they will] try to mitigate some of the impacts, right, because I think they recognise that they don't want to hurt the profitability of the industry,” said Ostermann. Companies recognise that winning over Trump is crucial to softening the worst of the impacts, so there were bizarre statements like the one from GM’s Barra declaring that she was “grateful to president Trump for his support of the US automotive industry” even as she was predicting a $4-5bn impact from his tariffs. Others are hoping that carve-outs will be possible for some countries, for example South Korea (the source of much of GM’s budget models) or the UK. Aston Martin CEO Adrian Hallmark pressed UK prime minister Keir Starmer to continue pushing for a deal. “We're very optimistic about that – and the government, we know, are very focused on it,” he said on his company’s earnings call. The uncertainty, however, prevented car makers from giving analysts definite answers on what they would do to mitigate the tariffs and protect profits that are already under threat from a slumping Chinese market share and the costs of shifting to electric. As Mercedes’ Källenius put it: “In a situation this uncertain, we should refrain from taking too drastic of an action too soon.”

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Trump tariffs: car makers struggle to mitigate loss of billions in profit

For many, the imposition of a 25% US import charge spells crisis. But for some, it's a major opportunity

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Trump tariffs: car makers struggle to mitigate loss of billions in profit

For many, the imposition of a 25% US import charge spells crisis. But for some, it's a major opportunity

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