There’s a high likelihood that in just one week the global automotive industry could experience an extended disruption period because of the ongoing global tariff war. In this scenario, several vehicle models would cease production, new vehicle processes would rise and product development could impact production for years to come, according to a study from S&P Global Mobility. We could actually see production dropping by a staggering 20,000 vehicles per day.
At the very least, that’s one of three scenarios the firm laid out after analyzing the impact of the uncertainty and volatility caused by President Donald Trump and his drastic change to tariff policy. S&P gives this scenario a 50 percent chance of actually happening. As it turns out, antagonizing your trade partners and going back and forth between implementing and repealing tariffs is not a winning strategy. Who knew? From the Detroit Free Press:
S&P Global Mobility rates the chance of a quick resolution scenario to tariffs at a mere 30% likelihood, given the recent state of affairs and ongoing fits and starts to the tariff war.
Given that most carmakers and their suppliers will invest capital only if there is long-term stability in the trade and planning environment, the ongoing uncertainty may delay development of future vehicle programs, especially with uncertainty around emission and fuel economy regulations, S&P Global stated.
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“With tariffs now imposed on Canada and Mexico, we expect significant disruption in the region. S&P Global Mobility sees potential for North American production to drop by up 20,000 units per day within a week,” the report stated. “We now expect that the tariff posture, messaging and coverage through 2025 will be erratic, placing (automakers) and suppliers’ mid- or long-term vehicle and facility planning in a virtual gridlock.”
S&P has laid out three scenarios for how all of this will shake out. Two of them are rather bleak. In the best-case scenario, with the 25 percent tariffs on Mexico and Canada in place and delayed tariffs for U.S.-Mexican-Canada-Agreement-compliant products, the firm sees a 30 percent probability of a quick resolution. That could still take up to a month. During this, some automakers will lose production and there will be border gridlock. In this scenario, lost sales and production can be made up for.
Unfortunately, this is the best-case scenario. Next up, we’ve got that 50 percent probability scenario we spoke about before. It would mean the tariffs last 16 to 20 weeks and during this time “several high-exposure vehicles will slow or cease production,” according to S&P’s study. Consumers would see limited incentives as automakers struggle to protect profits.
Finally, we’ve got the nuclear scenario: a “tariff winter.” Here’s what would happen in that scenario, explained by Freep:
The most dire scenario is a “tariff winter,” which S&P Global Mobility places at a 20% probability. In this scenario, it said that “25% tariffs on Mexico and Canada are integrated long-term into auto trading and any resourcing from Mexico or Canada to the U.S. resulting from the high tariffs would create an environment of suboptimal sourcing, as vehicles and components currently produced in Mexico and Canada are currently in those locations due to cost and efficiency advantages.” To move them to the U.S. ends those advantages and raises costs, but leaving them where they are also increases costs because of the tariff.
In the last scenario, S&P Global said moving production to the U.S. to avoid tariffs could raise labor costs for manufacturing, worsen a general labor shortage and leave car companies and suppliers with underutilized plants in Mexico or Canada.
We’re all so boned, man. Hold on to your butts, because judging by society’s luck lately, option three seems like it could really happen.
