After the bomb dropped by Donald Trump on auto sector with the announcement on duties of yesterday, for the car companies it's time to taking a decision: locate more production in the United States, take on the costs of tariffs, or pass them on to consumers?
Classic Ferrari for sale for example, which produces all its cars in Italy has declared that it will increase the prices of some models by up to 10%. But while the customers of the Prancing Horse, who gravitate towards the luxury circuit, can tolerate a price increase, for average consumers the burden is much more substantial and the car could return to being a luxury.
The hope of markets, builders and investors is that the star-spangled administration realizes that what is being done penalized will even average US consumers and that he therefore decides to lighten its scope. Trump on Wednesday announced new rates that will come in effective April 3 on cars and auto parts from Asia and Europe, as well as those from Canada and Mexico. The Canadian and Mexican tariffs will be the most damaging for most automakers, which depend on these neighboring countries not only for part of their production, but also for a large component share which they use to assemble cars.
There is no such thing as an all-American car: half of it comes from abroad
Behind Trump's move to impose tariffs on all imported foreign-made cars and various automotive components is the goal of increase domestic production in the sector and then reduce prices. But it won't be like that. The cars built in US factories they will be anyway hit by duties. This because There is no such thing as an all-American car, as some experts interviewed by the agency point out CNN: All 10,2 million cars built in U.S. factories last year were built with a significant number of imported parts, mainly from Canada and Mexico. The average internal content It is conservatively estimated only 50% and it probably is closer to 40%. Then, an “American” car that cost $40.000 to build could be hit with $5.000 in tariffs because half of its parts come from other countries.
US car prices will rise by as much as 25%. And there will be less availability
The biggest concern is that the tariffs will trigger a car prices surge in the US where they have already risen in recent years to an average of 48 thousand dollars per car. Dynamics that has stopped the market making it even more stagnant. In 2024, the U.S. imported $290 billion in cars, mostly from Mexico, Japan, Canada, and Europe, and $179 billion in components.
Estimates on theimpact of the new tariffs on skyrocketing production costs. range from $3.500 to $12.000 or more per vehicle, depending on the model, according to the Anderson Economic Group, a Michigan-based think tank. John Bozzella, head of theAlliance for Automotive Innovation, an industry association representing giants such as General Motors, Ford, Toyota, Volkswagen, Hyundai and Stellantis, said that “all car manufacturers will be hit by the tariffs”. As a result, the price of some models could increase by as much as 25%, also impacting on the and security e on access for consumers. In addition to production prices, it will be necessary to see, along the supply chain, how car prices will be defined in negotiations between dealers and final buyers.
The other major impact on prices could come from an availability of cars significantly lowerIt is likely that car manufacturers reduce production of cars waiting to see if the rates prove to be short-lived. And already a reduced supply, alone, can do raise prices. That's what happened in 2021, when the computer chip shortage has caused deep cuts in auto production, resulting in higher prices for both new cars (+17%) and used cars (+32%). This time the impact could be similar. “If the tariffs are implemented, we expect disruptions to virtually all North American vehicle production, amounting to 20.000 fewer vehicles produced per day, which equates to about a 30% reduction in production,” he told CNN Jonathan Smoke, chief economist at Cox Automotive, during a press conference Wednesday. “Bottom line, lower production, tighter supply, and higher prices are just around the corner, as they are in 2021.”
Don't forget the duties on steel and aluminum
Although the duties on steel and aluminum will not immediately increase the costs of the automakers thanks to the long-term contracts with suppliers, it is likely that this will happen later, even if they buy from American manufacturers. Both the General Motors that the Ford they estimated that the increase in costs of raw materials following the imposition of Canadian tariffs on steel and aluminum in 2018, it has cost them more than $1 billion a year each. American steel prices have already risen 30 percent or more in the past two months, according to Phil Gibbs, a steel analyst for KeyBanc. Aluminum prices have risen about 15 percent.
Moving Production to the US? A Trump Mirage
But even Trump's idea that tariffs will lead to automakers move production of cars and their supply chains in American factories it's not even remotely feasible, industry experts say. “If you build your car in the United States, there are no tariffs,” Trump told reporters in the Oval Office, “and many companies will increase domestic production while others will come to our country and are already looking for sites. One plant Trump references is the Honda in Indiana, which it said will be among the largest ever. But Honda confirmed it had not announced any such plans.
Trump's goal seems to be far from reality: it's not something that can be done by simply flipping a switch in the short term. “Automakers are suffering a lot of costs and a lot of chaos for Trump's tariff threats" said the CEO of Ford Jim Farley at an investors conference stressing that he has no intention of building new plants in the short term.
This is also due to the fact that Trump's intermittent taxes they do not provide certainty which car manufacturers need for invest billions of dollars in new factories. “There are too many questions about the future of trade policy to make these types of decisions at this time,” said the CFO of the General Motors Paul Jacobson: Bringing production back is not economically feasible for other reasons, too. Companies that have just emerged from the supply chain crisis are already close to their maximum capacity, and new investments would take a very long time. It takes years to implement policies of this type. Stellantis, which produces cars in North America under the Jeep, Ram, Dodge and Chrysler brands, has agreed to reopen a closed plant in Belvidere, Illinois, as part of a deal to end the 2023 United Auto Workers strike. But that plant won’t reopen until 2027.
Automakers are still unsure which tariffs will be permanent and which are simply a “negotiating tactic,” the former CEO of the Ford Mark Fields in an interview with CNBC. “Most boards will wait for this to clear up.”
However, Volvo, Audi, Mercedes-Benz and Hyundai cars from Volkswagen They said they will move parts of their production to the US.
The impact on Tesla
Even the president's right-hand man is not excluded from Trump's tariffs, Elon Musk On his social X, the super billionaire said that "to be clear, this will affect the price of Tesla car components that come from other countries. The impact on costs is not trivial." According to Bloomberg, Musk's company is among the few winners of the trade war unleashed by Trump.
Ferrari will raise prices, but its customers won't mind that much
For Ferrari, duties are not a problem. It certainly has no intention of moving from Maranello. What it will do is update its commercial policy. “The commercial conditions will remain unchanged for orders of all models imported before April 2, 2025 and for orders of the following three families – Ferrari 296, SF90 and Roma – regardless of the import date,” said the house of the Red Horse. “For the remaining models, the new customs conditions will be partially reflected in the price, up to a maximum of 10% increase, in coordination with our distribution network.” For its clientele, which gravitates towards the luxury world, an increase of this type has little impact.
The effects on Europe and Italy
“We are deeply concerned,” admitted Acea, the European Automobile Manufacturers’ Association, in a statement. “The additional tariffs come at a watershed moment for the transformation of our industry as fierce international competition increases.” The manufacturers remind the US president that they have invested for decades, creating jobs, promoting economic growth in local communities and generating huge tax revenues for the US government. A message that aims to overturn Trump’s narrative on countries that for “centuries” have stolen “millions of dollars” from the United States. “We urge President Trump to consider the negative impact of the tariffs not only on global automakers, but also on US domestic production – Acea's warning –
The tariffs will not only impact imports into the United States, a penalty that American consumers are likely to pay, but the measures on auto parts will also hurt automakers that produce cars in the United States for export markets.”
In Italy models are produced that are exported abroad, partly also to the USA. After all, one of the legs of the group Stellantis is American and in Italy some Jeep models are produced, such as Compass and Renegade in the Melfi plant, or the Dodge Hornet in Cassino. And then there is the 500 in Mirafiori. These are vehicles, especially Compass and Renegade, which are at the end of their cycle. Uncertainty also in the world of components. It is not clear which systems will be affected and in what way. This is a significant cake: up to November 2024, exports to the USA will reach 1 billion and 159 million, especially in mechanical components. A share of 5% of the total exports of the sector worldwide.
Will the car become a luxury again?
In the 50s, while Italy was struggling to emerge from the war, a car was a much sought-after but very demanding purchase. The cost of a car varied based on the model and brand. If we want to take for example a Fiat 500, which was the symbolic car of Italy in that period, it cost around 500.000 lire at the beginning of the 50s. This represented a considerable economic commitment, considering that the average salary of a worker was around 50.000-60.000 lire per year, so about 8-10 times the average annual salary.
Today the price of a 500 varies between 15.000 and 20.000 euros, that of a Panda between 13.000 and 18.000 euros. With the price increases, prices could reach around 25.000 euros, compared to an average gross annual salary of around 30.000 euros in 2023.
