AUTO TARIFFS WOULD HURT ‘EVERYONE’: STUDY.

Once a Trump favourite, Harley-davidson feels the pinch from tariff war Moody’s report warns of supply chain disruption

TORONTO • A proposed U.S. tariff on imported vehicles and auto parts would be negative for most of the highly integrated auto industry, says a new report, and could potentially put some auto production in Canada at risk.

A Moody’s Investor Services report released Monday found that the Trump administration’s proposed 25 per cent tariffs on vehicle and autopart imports would hit automakers, parts suppliers, dealers, retailers and other transportation companies, disrupting the global supply chain that is expected to produce 96.7 million vehicles this year.

“This would be negative for virtually everyone participating in the industry, whether you’re talking about U.S., European, Japanese or Korean manufacturers, part suppliers or retailers,” said Bruce Clark, Moody’s senior vice-president.

“With few exceptions, tariffs of the type that have been discussed have clearly negative implications from a credit perspective.”

While the tariffs would force non-u.s. automakers to make major production adjustments, the report said American car manufacturers would be vulnerable as well, as both Ford Motor Co. and General Motors Co. import a substantial number of vehicles sold in the U.S. from Canada and Mexico.

“The imposition of 25 per cent tariffs could compel Ford and GM to initially subsidize vehicles imported into the U.S., and eventually shift production back to the U.S.,” the credit ratings agency’s report said.

“Both manufacturers would need to absorb the cost of scaling back Mexican and Canadian production and moving some back to the U.S.”

“They would also probably need to subsidize sales to offset the tariffs for a time, with higher costs eventually passed onto the consumer,” the report said.

Last month, U.S. President Donald Trump initiated a Department of Commerce investigation to determine the national security effects of the import of automobiles and automotive parts under Section 232 of the Trade Expansion Act of 1962, the same legislative move to impose steel and aluminum tariffs.

Representatives of U.S. automakers have warned that the tariffs would harm the American auto industry.

“This course of action will undermine the health and competitiveness of the U.S. auto industry and invite retaliation by our trading partners,” John Bozzella, the chief executive of the Association of Global Automakers said in a statement after the investigation was announced.

GM in particular faces increased vulnerability if hefty tariffs are imposed, the report said, as 30 per cent of its U.S. sales unit depends on imports from Canada and Mexico. Ford imports 20 per cent of its sales from its two NAFTA neighbours.

Compounding the issue for GM is its production makeup, according to Moody’s. American automakers have been forced to re-evaluate production over the last several years as passenger cars sales have steadily declined while the SUV and light-truck segment shows no apparent signs of slowing down.

Today, GM assembles its popular GMC Sierra and Chevrolet Silverado at its plant in Oshawa, Ont., as well as in Mexico, which the report says “are significant contributors to the company’s strong North America operating margins.” Meanwhile, Ford’s imports into the U.S. are largely cars, at a time when the automaker is gearing up to phase out most of its passenger car production.

“GM’S vulnerability to tariffs is greater than that of Ford’s,” the report said. “GM would likely face a more burdensome and costly challenge of having to shift significant amounts of Silverado and Sierra production back to the U.S. from Mexico and Canada.”

Automakers outside the U.S. would also be forced to adjust domestic production rates. The report says Japan’s Toyota Motor Co. exports about 22 per cent of its vehicles produced domestically to the U.S., while Nissan Motor Co. Ltd. exports about 31 per cent of its vehicles to the U.S. About 40 to 50 per cent of Korean automakers Hyundai Motor Co. sales in the U.S. are imports, compared to 60 to 70 per cent for Kia Motors Corporation.

The report also said that the largest auto parts suppliers, such as Aurora-based Magna International, may struggle to adapt quickly changes to automaker’s production as a result of the imposition of the tariffs.

“An even greater negative effect could come from suppliers’ efforts to optimize production cost and time for completed parts that often results in multiple cross-border trips for finished goods, which could incur multiple tariff charges,” the report said.