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Industry Analyst Predicts 15% Tariff on EU, Japanese, Korean Cars, 12% in USMCA

President Donald Trump thinks that by applying a 25% tariff to auto part imports, domestic parts companies will thrive. But 77% of the nearly 1,000 auto supplier companies that belong to MEMA are pessimistic about the next year for their businesses -- and 55% said that government trade policy is the No. 1 threat to financial health.

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Even before those tariffs, new orders were dropping, and the new electric vehicles that many companies sell parts for aren't selling as well as forecasted -- some are only at 50% or 75% of expected volume, said Mike Jackson, executive director of strategy at MEMA, the Motor and Equipment Manufacturers Association. He was speaking at a conference hosted in Michigan by the Automotive Futures Group.

Companies need to produce at scale to be profitable, so those kinds of shortfalls mean "a financial loss, in many cases," Jackson said.

Jackson said that in 2022 and 2023, the industry authorized more than $50 billion in capital investments for expanded production, and, in 2022, more than $40 billion of that was related to electric vehicles, helped by incentives in the Inflation Reduction Act and infrastructure law.

Now, those tax credits look to be in danger, and the administration is turning away from EVs, despite Elon Musk's prominence.

Among MEMA members who were surveyed, 58% said the possibility those investments went for production that will no longer be profitable is either their utmost concern or a substantial concern.

"Tariffs couldn’t come at a worse time," Jackson said.

Another top worry for companies is whether smaller, lower-level suppliers will go out of business as a result of the tariffs. "It doesn’t take many suppliers to become insolvent to derail the industry," he said.

Among smaller companies surveyed by MEMA -- and two-thirds of the group's membership is among companies with $10 million to $200 million in annual revenue -- 47% said the tariffs make them much less competitive, both compared with Mexican and Canadian firms and with competitors around the world. Only 2% said that 25% tariffs on imported auto parts would make their firms more competitive.

"The shifting tariffs in an incredibly short window of time … are a financial burden for our members," Jackson said.

Jackson said MEMA has met with members of the Trump administration to share this information, and has met with 50 members of Congress to talk about the burden of tariffs.

He said the administration seems to think production can be shifted to the U.S. within six months, and that's not true -- and investment has been frozen since February, between the unpredictable policy and the damper on consumer demand. Jackson said the industry wants politicians to "support policies that will endure beyond a four-year window so that we’re not constantly trying to steer the ship in a very dramatic fashion every four years."

Guido Vildozo, associate director of automotive consulting at S&P Global, said that because of industry lobbying, he expects the automotive sectoral tariffs to be lowered, and that some parts may be exempted. He said S&P is projecting that imported cars and parts from the USMCA region will be taxed at 12%, and Japanese, Korean and European cars will be taxed at 15% once the dust settles.

But he doesn't think it can be in the single digits. "If the tariff is under 15%, it still makes more sense to have the plant in Mexico," he said. "The administration knows that."

Before adjustments happen, though, he expects U.S.-built cars to have a 5% to 7% increase in the cost to deliver the vehicles to dealerships, 14% to 18% increases for Canadian and Mexican vehicles, and 20% increases for the rest of the world. North American carmakers will have profits fall by 2% to 4%, EU carmakers will have a similar hit, and Japanese carmakers will face a 4% to 7% hit, he projected.

Even with the companies eating some of the cost of tariffs, S&P is projecting the weighted average of MSRP will be $50,300 in 2025, up from $45,914 last year, a 9.5% increase.

Given that financing a car costs 8% these days, and the price of cars is already straining American budgets, S&P is projecting sales of new cars in the U.S. will be about 14.1 to 14.3 million -- down from more than 15.9 million last year.

Jackson and Vildozo both said that automakers need to produce 14 million cars annually to be in the black.

Certain kinds of cars just can't be sold in the U.S. with the tariffs administration favors -- subcompact cars, Vildozo said, but possibly the more popular subcompact crossovers, none of which are made in the U.S. Even among compact cars, which had an average profit of about $1,100 per vehicle, companies will have to eat so much of the tariffs that the average profit will be $338 per vehicle. And even if the prices only increase by $2,600, because companies eat almost $1,000 of the cost, sales are expected to drop by 14%, he said.

Vildozo said some manufacturers already only had a $300/car profit in the compact car segment, so those models won't be sold in the U.S.

Vildozo noted that 400 million auto parts are imported from either Canada or Mexico every day. Conference host Bruce Belzowski pointed out that only 63% of motor vehicle parts from Mexico were USMCA-compliant, and 74% from Canada.

Jackson said many of those parts used to be duty-free even without meeting rules of origin, so companies didn't bother. Now they are aggressively trying to reach compliance, but it will take many months for many companies.