Will Trump's One-Month Tariff Delay for Automakers Be of Much Help?

President Donald Trump’s 25% tariff on imported goods from Canada and Mexico took effect on March 4, shaking the automotive industry and sending most auto stocks into the red on Tuesday. However, yesterday, the White House announced a one-month exemption for U.S. automakers that comply with the U.S.-Mexico-Canada Agreement (USMCA). This temporary pause sparked a brief rally in auto stocks, but does it offer real relief, or is it just delaying the inevitable?A Short-Lived Relief for AutomakersThe announcement of the one-month exemption led to a swift recovery in auto stocks. Major players like Ford F, General Motors GM and Stellantis STLA saw their stock prices rebound after Tuesday’s losses. F, GM and STLA rose roughly 6%, 7% and 9%, respectively, reflecting investor optimism, as the exemption eased concerns about immediate cost increases and potential profit declines. Tesla TSLA also gained 2.6% following the news, recovering from a 4.4% drop the previous day.While this temporary exemption offers a brief sigh of relief, it does not erase the uncertainty looming over the industry. The reality is that once the exemption period ends, tariffs would push vehicle prices significantly higher, affecting sales and profitability.The Impact of Tariffs on Consumers Some reports suggest that tariffs are expected to increase vehicle prices by as much as $12,000, but only for cars that have not yet been built or imported. This poses a significant challenge for consumers already grappling with high vehicle costs.According to Kelley Blue Book, Trump’s tariffs could raise the average new car price—already nearing $49,000—by at least $3,000, Full-size pickup trucks, a key segment for U.S. automakers, could see price hikes of up to $10,000.This means that the current inventory on dealer lots is a temporary hedge against the expected price hikes. According to CarGurus.com, new car inventory is up 12% compared to last year, allowing consumers a short window to purchase vehicles at pre-tariff prices. However, once these cars are sold, prices could rise sharply.Used cars remain another option, as they are also exempt from tariffs. But availability is tightening. In February, the supply of used cars was 45.2 days, a decline from January’s 49.5 days. As new vehicle prices climb due to tariffs, demand for used cars will likely rise, driving up their prices as well.Long-Term Industry ConsequencesThe Big 3 automakers face varying degrees of exposure to the tariffs. GM’s Chevrolet and GMC pickups, along with Stellantis’s Ram, are particularly vulnerable due to their reliance on Mexican manufacturing. In contrast, Ford builds its F-Series trucks in the United States but still sources some key components, such as engines, from Canada.The complex supply chain that connects the three North American economies means that no automaker is likely to be fully insulated from the impact of tariffs. While the one-month exemption delays the impact of tariffs, it isn’t solving the deeper issues they create.Vehicles built in the United States often rely on components from Canada and Mexico. Research shows that Mexico supplies up to 40% of components used in U.S. vehicles, while Canada contributes over 20%. Tariffs on these parts will ripple through the entire supply chain, ultimately increasing costs for both manufacturers and consumers. Suppliers, already dealing with high costs, may struggle to absorb these tariffs, potentially leading to job losses and production cuts.Industry analysts predict that prolonged tariffs could lead to production slowdowns or even shutdowns at some plants. S&P Global Mobility warns that if tariffs persist beyond eight weeks, the industry could face a scenario they call "Tariff Winter." In this case, North American light-vehicle sales could decline by 10% over several years, with Mexico and Canada also seeing significant drops.Final ThoughtsTrump’s one-month exemption gives automakers a short break, but it doesn’t solve the bigger problems that these tariffs would eventually create. The market saw a quick boost, but the long-term impact is unclear. Once the exemption ends, costs will rise for automakers, suppliers, and consumers. If no deal is reached, higher prices are inevitable. Companies are already figuring out how to handle the extra costs, but the real question is how long the tariffs will last once enacted—and that’s anybody’s guess.     Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. 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