U.S. tariffs taking a toll on Canadian auto parts makers

The steel tariffs imposed by U.S. President Donald Trump are hitting auto parts manufacturers, with Magna International Inc. lowering its sales targets for 2018 and warning the levies will affect its earnings for the second half of the year.

“As far as what’s going on with all of the tariff activity, it’s certainly in flux,” Magna’s CEO Don Walker told analysts on an earnings call. “Internally, it’s extremely complicated to get (our) arms around everything.”

Walker said the company’s estimated exposure to the tariffs imposed by the U.S. is $60 million on an annualized basis, with $30 million expected through the remainder of 2018.

The uncertainty surrounding tariffs on both Canadian and Chinese steel, as well as a strengthening U.S. dollar and headwinds related to its GETRAG transmissions business, prompted Magna to lower its end-of-year outlook for income, sales and other key targets.

Canada’s largest automotive parts maker now expects net income to be in the range of $2.3 billion and $2.5 billion, down from a previous estimate of between $2.4 billion and $2.6 billion. Total sales estimates were also lowered, and are now expected be in the range of $40.3 billion and $42.5 billion, as opposed to between $40.9 billion and $43.1 billion.

Magna’s stock fell more than seven per cent following the earnings release.

The highly integrated North American auto industry has been grappling with uncertainty as a result of the hefty U.S. steel and aluminum tariffs imposed in May, as well as questions about NAFTA talks.

Walker said the quicker Canada, the U.S. and Mexico can reach an agreement on NAFTA, the better for all three countries. “I think eventually we have to get it resolved, or else it’s going to be a big lose for everybody.”

The chief executive of Linamar, the second largest automotive parts manufacturer, told analysts on a conference call on Tuesday that while the impact of the steel and aluminum tariffs have been minimal on the company, others are beginning to feel the pain.

“Several automakers have cited higher costs ...,” Linda Hasenfratz said. “Pain is slowly building and will ultimately take its toll.”