Al Root
President Donald Trump is creating a no-win situation for car markers by raising costs with tariffs and asking car makers not to adjust their prices.
On Thursday, The Wall Street Journal reported that President Trump warned auto makers earlier this month not to raise prices in response to his plan to place 25% import tariffs on all cars and key car parts starting next week. The White House didn't immediately respond to a request for comment.
His request is another headwind for the auto industry. If companies follow Trump's guidance, they'll see huge losses that Wall Street has yet to consider.
The math simply doesn't work. The 25% tariffs could raise the average price of a new car by $5,000 to $10,000, according to various estimates, including Barron's.
Trump's aides pegged the revenue opportunity of auto tariffs at $100 billion annually. That is about $6,000 per new car sold in the U.S. and $14,000 per imported car.
Ford Motor and General Motors generate combined annual sales of about $375 billion and operating profit of $25 billion from unit sales of about 7.5 million cars. The average car price for the pair is about $49,000 and the average profit per car is about $3,300.
One caveat: Those are global numbers. It's difficult, if not impossible, to do that math for the two company's U.S. businesses. GM reports its North American segment; Ford moved away from reporting sales by geography.
Still, Ford and GM's average profit per car is far smaller than the tariff impact.
Ford and GM didn't respond to requests for comment.
Tariffs will only be applied to a portion of the business and unevenly across a company's vehicle lineup. In theory, the Ford Bronco and Chevy Equinox could get much more expensive -- those are assembled in Mexico. GMC Sierras and Ford Explorers wouldn't because those are assembled in the U.S.
Cars are necessarily one-for-one replacements, however. If Equinox prices rise, resulting in weaker demand, GM still has the plant and employee costs to bear, even with reduced output. And if demand is stable because Chevy doesn't raise prices, the $7,000-plus loss on the sale of an Equinox would offset the profits earned on the Sierra.
The impacts of the tariffs are myriad and companies will work feverishly to mitigate them. But the simple fact is that losses will pile up without price adjustments. UBS analyst Joseph Spak wrote Thursday that the tariffs could completely wipe out Ford and GM's 2025 profits.
That level of profit destruction isn't in Wall Street's numbers yet. For 2025, Wall Street sees GM operating profit landing at about $14 billion, according to FactSet. That estimate has climbed since January. The number for Ford is about $7.6 billion. That is flat since Ford reported fourth-quarter earnings in February.
Analysts are either hoping things turn out differently or have given up trying to predict what happens. That leaves investors fending for themselves and waiting for company guidance. The tariff news has added uncertainty, which is never good for stock prices or valuation multiples. At best, investors should expect stocks to be directionless while the dust settles.
Even more troubling is the influence Washington is attempting to exert on a commercial decision in a huge American industry. The pressure might work, to some extent. Prices might not go up as much as feared and the ingenuity of American car makers might mitigate some tariff headwinds. Perhaps profits won't completely evaporate. But those are big ifs.
"It is critical that tariffs are implemented in a way that avoids raising prices for consumers and that preserves the competitiveness of the integrated North American automotive sector," Matt Blunt, president of the American Automotive Policy Council, said earlier this week.
Ford stock was down 0.2% in early Friday trading after dropping 3.9% on Thursday. GM stock was up 0.3% after dropping 7.4% on Thursday. The S&P 500 and Dow Jones Industrial Average each were down about 0.4%.
Coming into Friday, Ford shares had dropped 7% and GM shares dropped 12% since the Nov. 5 presidential election.
Write to Al Root at allen.root@dowjones.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 28, 2025 09:28 ET (13:28 GMT)
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