Proposed tariffs on vehicles and parts entering the U.S. will hurt every segment of the global automobile industry, according to Moody’s Investors Service.
In a note reported on by CNBC and Detroit Free Press, the credit rating agency warned that higher tariffs on imports will send shockwaves throughout the auto industry’s entire global supply chain, denting corporate profits and the credit ratings of car makers, parts suppliers, dealers and transportation companies.
“Tariffs on imported cars, parts would be broadly credit negative for industry,” Moody’s said in the report. “A 25% tariff on imported vehicles and parts would be negative for nearly every segment of the auto industry — carmakers, parts suppliers, car dealers, and transportation companies … Should any tariffs be levied, carmakers would need to absorb the cost to protect sales volumes while hurting profitability; increase prices to pass the tariff costs to customers, which could hurt sales; or a combination of both.”
President Donald Trump administration’s 25% tariff on Chinese goods including autos is expected to be enforced July 6. Last week, the U.S. government also threatened to introduce a 20% tariff on all imports of European Union-assembled cars.
“Based on the Tariffs and Trade Barriers long placed on the U.S. & its great companies and workers by the European Union, if these Tariffs and Barriers are not soon broken down and removed, we will be placing a 20% Tariff on all of their cars coming into the U.S. Build them here!” Trump tweeted on Friday.
While the tariffs are being targeted at foreign firms, Moody’s pointed out that the global nature of the industry means that U.S. giants Ford Motor Co. (F) and General Motors Co. (GM) will also fall victim to the proposed measures. Both Ford and GM, the firm warned, import a large number of vehicles into the U.S. from Canada and Mexico (See also: Ford Stock Faces More Declines as Outlook Worsens.)
“Tariffs would be a negative for both Ford and GM,” said Moody’s. “The burden would be greater for GM because it depends more on imports from Mexico and Canada to support US operations. In addition, a significant portion of GM's high-margin trucks and SUVs are sourced from Mexico and Canada … Both manufacturers would need to absorb the cost of scaling back Mexican and Canadian production and moving some back to the US.”
Moody’s also identified Fiat Chrysler Automobiles N.V. (FCAU) as a victim, noting that the world’s eighth largest automaker manufactures "about half its vehicles in U.S., with the remaining units imported mainly from Mexico and Canada." The report went on to claim that non-U.S. car manufacturers who sell cheaper brands and don’t have plants in the U.S. will be hit particularly hard by the proposed tariffs. (See also: How Trump's Auto Tariff May Hurt US Companies, Consumers.)