**London**: The global automotive sector is reeling from President Trump’s 25% tariffs on imports, prompting urgent strategy reviews among manufacturers. With potential declines in production and rising costs, the industry may see significant operational disruptions and shifts in sourcing strategies in response to these changes.
The global automotive industry is currently experiencing significant upheaval following the recent announcement by President Trump imposing a 25% tariff on imported automobiles and auto parts. The decision has sparked an urgent review of strategies among car manufacturers worldwide, with immediate implications for the complex supply chains that are critical to vehicle production.
The tariffs, which were announced last week, are set to target complete vehicles and essential components such as engines and transmissions. According to Charlie Chesbrough, a senior economist at Cox Automotive, the news has “sent shockwaves across the marketplace.” He indicated that the long-expected tariffs have now entered a phase of certainty, with many in the industry preparing for a comprehensive impact on production and pricing strategies.
The North American automotive sector is particularly vulnerable, given that nearly half of the vehicles sold in the United States are foreign-made. Furthermore, domestic manufacturers like General Motors and Ford rely on a substantial amount of imported parts, averaging around 60% of components sourced from locations outside the U.S. Simon Geale, an executive vice president at Proxima, emphasised the deep integration of the industry, stating, “There’s no such thing as an American car.”
As industry leaders scramble to comprehend the full extent of these tariffs, they face immediate operational challenges. It has been estimated by Cox Automotive that if the tariffs had been in effect last week, U.S. production could have decreased by approximately 20,000 vehicles per day, marking a potential decline of around 30% in output.
In response to the impending tariffs, some car manufacturers may consider relocating their production facilities back to the U.S. to evade these new costs. However, this process is both costly and time-consuming, typically requiring a timeframe of at least two years to establish new assembly lines. MIT Sloan School of Management professor Michael Cusumano remarked on the disruptions this may cause, noting, “It’s going to be disruptive and expensive for American consumers for several years.”
Adding to the complexities, the proposed tariffs on imported semiconductors are set to add another strain on automakers. Modern vehicles, particularly those equipped with advanced driver-assistance systems (ADAS), have increasingly relied on sophisticated semiconductor components. S&P Global Mobility projects that the average cost of semiconductors per vehicle will soar, resulting in added expenses for manufacturers and, ultimately, consumers.
With approximately 65% of chips in U.S. vehicles sourced from foreign suppliers, the enforcement of a 25% tariff could raise chip costs by approximately $188 per vehicle. Moreover, 76% of wafer production occurs outside the United States, potentially escalating costs to around $219 per vehicle. This development compels Original Equipment Manufacturers (OEMs) to reevaluate their sourcing strategies and consider heavier investment in domestic semiconductor fabrication and assembly.
Hrishikesh S, a senior specialist at S&P Global, highlighted the potential for “pricing volatility, supply chain restructuring, and shifts in competitive dynamics among global automakers” in the short term. The true ramifications of these tariffs will become clearer following the U.S. review of trade agreements expected by April 2, which could indicate whether these challenges will lead to long-term structural changes in the industry or if they represent a temporary hurdle.
As manufacturers continue to navigate this uncertain landscape, the global automotive industry stands at a crossroads, with the immediate impact of the tariffs reverberating across supply chains and affecting production capabilities worldwide.
Source: Noah Wire Services
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