When the Trump administration imposed tariffs on Canada, S&P Global created three scenarios of how the situation might unfold, and how it would impact the automotive sector.
They have since adjusted the outlook, with the analyst group expecting that the “posture, messaging and coverage of tariffs” on the auto sector through 2025 will be “erratic, with industry planning in a virtual gridlock.”
S&P Global’s first scenario has the group expecting a 30 per cent probability that there will be a quick resolution to the situation, of up to four weeks. The company expects to see some OEM production lost as a result of supply issues and border gridlock, and also short-term production halts. A quick resolution would mean lost sales and production can be recouped.
The group’s second scenario involves an extended disruption of 16 to 20 weeks, thanks to the Trump administration’s latest actions. That scenario is now estimated to have a 50 per cent probability. It would involve the slowdown or production halt of many high exposure vehicles.
“Production may resume after several weeks, with tariff accommodation and repricing of vehicles,” said S&P Global in its update. “In this scenario, a 25 per cent tariff on all vehicle imports starting April 2 would impact 45 per cent of U.S. light-vehicle sales.”
The last scenario involves a “winter tariff” situation and is much more dire. The analyst group has placed this scenario at a 20 per cent probability of occurrence. This situation involves 25 per cent tariffs on Mexico and Canada being integrated long-term into auto trade structures.
They said moving vehicles and components to the U.S. would end current advantages and increase costs, while leaving things as they are now would increase costs as well. But shifting production to the U.S. could result in higher labour costs for manufacturing, worsen the labour shortage situation, and leave OEMs and suppliers with underutilized plants in Mexico or Canada.
“Although some re-sourcing would occur, higher manufacturing costs could reduce North American light-vehicle sales by 10 per cent for several years, with declines projected at 10 per cent in the U.S., 8 per cent in Mexico and 15 per cent in Canada.”
