President Donald Trump’s decision to impose sweeping tariffs on auto imports from Mexico, Canada and the European Union (EU) is set to send shockwaves across the global automotive industry. A whopping 25% tariff on vehicles and parts from these key trade partners is set to take effect on April 2, 2025. This threatens to disrupt supply chains, inflate vehicle prices and trigger widespread job losses.

Prominent car manufacturers like General Motors (GM Quick QuoteGM - Free Report) , Ford Motor (F Quick QuoteF - Free Report) , Volkswagen (VWAGY Quick QuoteVWAGY - Free Report) and Toyota Motor (TM Quick QuoteTM - Free Report) depend on Mexico’s strategic location and skilled labor force to build vehicles efficiently. With tariffs potentially adding thousands of dollars to each car, demand could plummet, forcing production slowdowns and workforce reductions. 

The U.S. auto sector, which relies heavily on a tightly integrated North American and Mexican supply network, is expected to be severely hit. Critical components such as crankshafts and batteries often cross borders multiple times before being assembled. This means that tariffs could increase costs at every stage.

Furthermore, the tariffs are also expected to provide a competitive advantage to automakers from South Korea and Japan, who could sidestep these costs. As uncertainty looms, automakers and suppliers are bracing for a turbulent period that could reshape the future of the auto industry.

General Motors

The company has been implementing “playbook” strategic measures to minimize financial and operational disruptions due to the tariffs. Its reliance on Mexican manufacturing, where it produces many of its profitable pickup trucks and lower-cost electric vehicles, makes it especially vulnerable. 

GM imported nearly 750,000 vehicles from Canada or Mexico to the United States in 2024. The company began planning for this scenario in November and has already reduced its international inventory by more than 30% to avoid the risk of finished vehicles suddenly becoming significantly more expensive. It expects to mitigate up to 50% of the additional costs in the short term without deploying capital. However, prolonged tariffs could force GM to make tougher decisions, like shifting production locations or restructuring its supply chains.

Ford Motor

F has acknowledged that Trump’s tariffs could severely disrupt its operations. It has a Chihuahua engine plant and two assembly plants in Cautitlan and Hermosillo in Mexico. The company exported nearly 196,000 cars from Mexico to North America in the first half of 2024, with approximately 90% of the vehicles going to the United States alone. Ford also has an assembly plant in Oakville, Canada, where it has been planning to make a gas-powered F-Series pickup truck beginning 2026.

Terming them as a source of “cost and chaos”, the tariffs could “blow a hole in the U.S. industry”, as per F. While Ford sources most of its steel and aluminum domestically, some suppliers rely on imported materials, which could increase production costs. The company is assessing strategic shifts until the full impact becomes clearer. 

Ford is also considering stockpiling inventory in anticipation of higher import costs. However, its executives are still concerned that even small disruptions across the supply chain could add up, negatively impacting the company’s bottom line. Ford’s CEO has been actively engaging with government officials in Washington D.C., to advocate for a more comprehensive approach rather than targeting only Mexico and Canada. 

Volkswagen

VWAGY is the most vulnerable, as almost 65% of the vehicles it sells in the United States are manufactured in Mexico. It has an Audi plant in San Jose Chiapa and a BMW plant in San Luis Potosi, Mexico, with nearly all output going to the U.S. and other markets. When implemented, Trump’s administration’s tariffs could make many of its models, including the Jetta, Tiguan and Taos, uncompetitive in the American market. 

To mitigate the impact, VWAGY is considering shifting the production of Porche and Audi EVs to the United States. Expanding its Chattanooga, TN, plant and using its upcoming South Carolina facility for Audi models are some of the options that are being considered. This would help Volkswagen avoid tariffs while also strengthening its foothold in the U.S. market, where it is facing fierce competition from domestic EV makers like Rivian and Lucid, as well as global rivals like Hyundai, Kia and GM. 

VWAGY is also preparing for worst-case scenarios where it may have to sell its underperforming German plants to Chinese automakers. Thus, the company’s future in the United States presently hinges on strategic adjustments to production and supply chains in the face of high looming tariffs.

Toyota Motor

TM’s operational costs are expected to surge and threaten its market position. Many of Toyota’s best-selling vehicles, including the RAV4 and Corolla are produced in Canada and Mexico, leaving them exposed to higher import duties. TM used to make its Tacoma pick-up trucks in the United States but now does so at its two plants in Mexico and ships them back to the country.

In preparation, TM has been working closely with the Japanese government and industry leaders to seek diplomatic solutions and minimize the tariffs. It is also considering adjustments to its supply chain and production strategy to reduce the impact. Toyota already has several U.S. manufacturing facilities in states like Kentucky, Texas and Indiana that can help absorb some of the effects. However, shifting production is expected to be costly and time-consuming. When in effect, the tariffs may result in increased Toyota vehicle prices, reduced demand and squeezed margins.

Thus, as the tariffs loom, automakers are bracing for a phase of turmoil that could redefine the industry. On the other end of this challenge, the auto sector dynamics may emerge in an unpredictable way.