North America’s Automotive Sector Reconfigures in the Face of Tariffs

“Tariffs are here, the Trump administration is here…welcome to this new world.” This is how Guido Vildozo, associate director of automotive consulting at S&P Global Mobility, describes the path the North American automotive industry is facing with the implementation of a 25% tariff on light vehicles entering the United States.

The tax that went into effect on April 3, with exceptions for U.S. content on Canadian- and Mexican-made cars that meet USMCA requirements, is part of a Trump administration plan to revitalize the domestic manufacturing industry, so it is here to stay, said Vildozo, a regular speaker for several years at MexicoNow summits.

From day one, the tariffs disrupted supply chains to the point that some original equipment manufacturers (OEMs) announced temporary layoffs at North American auto plants. Since then, not a day goes by without a manufacturer announcing changes to their production plans to mitigate the impact on their bottom line.

A second round of auto parts tariffs went into effect on May 3, with exceptions for certain components produced in Mexico and Canada.

The U.S. government published a list of parts manufactured outside North America subject to a 25% duty. The list covers engines, transmissions, suspensions, steering and safety components, infotainment modules, and heating and air conditioning assemblies.

If the part is not on the list, it still pays a 10% tariff, as stipulated last month when the president canceled the so-called “reciprocal tariffs” for 90 days.

Days earlier, on April 29, the White House released a series of measures aimed at reducing the impact on the cost of U.S.-made cars. One seeks to protect automakers from the accumulation of tariffs on the same items.

A second measure is a tariff-free policy for parts produced in Mexico and Canada that meet the minimum regional content. However, this exemption is limited and will end once the value of the non-U.S. content on such parts is determined.

A third measure allows automakers to obtain tariff rebates on auto parts equivalent to up to 15% of the value of U.S.-assembled vehicles for the remainder of 2025. The credit will be reduced to 10% of vehicle value in 2026 and expire at the end of that year.

“The changes of the last few days make things easier (…) but even so, it's still a drastic change for the market,” Stephanie Brinley, senior automotive analyst at S&P Global Mobility, said afterward. “It's still a considerable burden,” she warned.

The Current Outlook

Automotive plants in Mexico initially responded with the production of 338,669 light vehicles last March, an increase of 12.1% compared to the same month last year. Total production for the first quarter reached 973,485 units, the second highest volume ever recorded for this period and an increase of 4.8% over 2024.

But April arrived and most plants faced downtime, partly due to the Easter vacations, but also because tariffs finally became a reality.

Total production volume during the first four months of the year amounted to 1,299,554 units, an increase of 0.9% compared to the same period in 2024. However, exports experienced a significant drop of 7.3%, totaling one million 32 thousand 819 light vehicles.

In the Mexican market, tariffs do not seem to have significantly affected consumer confidence, as new car sales experienced a modest 1.4% increase in the first four months of the year, reaching 473,323 light vehicles, the second highest figure on record for this period.

Monthly sales declined by 4.6% in April, although once again the Easter holiday had an impact on the result.

In the U.S. market, consumers rushed to purchase some of the last duty-free imported vehicles in inventory.

GlobalData estimates that 1.61 million light vehicles were sold last March, representing an 11% increase in volume compared to the same month in 2024, according to the same firm's records.

In April, another 1.49 million units were sold, totaling 17.6 million over the past 12 months (SAAR), according to estimates from both GlobalData and S&P Global Mobility.

Toyota, Kia, Mazda and Ford were among the best performing brands, while Infiniti, Jeep and Audi were among those with declining figures. However, regardless of the manufacturer, several models manufactured in Mexico experienced significant increases in demand due to the imminent arrival of tariffs.

However, this increase in sales will be short-lived, as dealers will replenish their inventories with more expensive vehicles and incentives will disappear.

"Our team expects strong sales until pre-tariff inventory declines, although each manufacturer and dealer is approaching this situation differently. Some manufacturers are already implementing offers and rebates or offering price guarantee programs, while others have already scheduled production shutdowns or are holding vehicles at the border while still deciding how to address the new tariff rules," stated Erin Keating, executive analyst and senior director of Economic and Industry Outlook at Cox Automotive.

According to the Cox Automotive executive, “April and May could be good months for vehicle sales as consumers feel the urgency to buy, even though lending rates remain near 25-year highs and incentives are likely to decline.”

Following the sales slump, “production disruptions could be a reality this summer, especially as automakers and suppliers work to align practices with the new rules (...) the auto market is absolutely heading into uncharted territory, a difficult road indeed,” warned Keating.

The Road Ahead

Uncharted territory, no doubt, “but with opportunities,” said Vildozo, an analyst with more than 20 years of experience who participated in the conference “Effects of the New Administration on the U.S. Automotive Industry,” organized by Automotive Futures, a Michigan-based mobility think tank.

The speaker noted that while auto sales remain strong, they are not due to high demand for high-margin, full-size SUVs, but rather to a population shift from north to south, where public transportation is scarce, so these consumers are looking for a solution to get around.

According to their estimates, 50% of potential customers move below a manufacturer's suggested retail price (MSRP) of approximately $37k; however, most of the affordable cars are imported, especially in the compact utility vehicle segment, where of the top 15 best-selling models, only six are U.S.-made.

Some of those “hatchbacks on steroids,” as Vildozo describes them, are selling very well and gaining momentum, but that doesn't mean OEMs will move production to the U.S. right away, because it's unclear whether those vehicles can be built profitably here at this time.

All of these changes will lead to thinking beyond plant locations, as the business model itself is about to change, with leasing driven by OEMs for the most expensive models, the executive said, noting the challenge ahead for premium German brands, whose 60% of their vehicles are marketed this way.

Vildozo insisted that tariffs are permanent and that even a renegotiation of the USMCA will result in a new normal of 12% tariffs for cars from Mexico and Canada, while the rest of the world will pay around 15%.

"It is certainly a challenge, but there are opportunities that we can explore and maximize in the coming years, but they have to be analyzed on a case-by-case basis. Everything will depend on the analysis of costs, prices and margins," concluded the expert.