Trump’s Tariffs Put Automotive Supply Chain at Risk…

International credit rating agency Fitch Ratings stated that the 25% tariff imposed by the US on automobile imports will increase prices and put pressure on demand. The statement reported that the credit effects on automobile and parts manufacturers are generally negative, but vary by manufacturer.

According to Fitch’s statement, the tariffs imposed on imported automobiles and certain automobile parts create negative and unequal credit effects on global automobile manufacturers. While half of the US light vehicle market consists of imported vehicles, it was stated that the largest suppliers are Mexico, South Korea, Japan, Canada and Germany, respectively.

Japan, South Korea and Germany will suffer the greatest damage
It was emphasized that the latest tariff decision will affect vehicles manufactured in Japan, South Korea and Germany and sold to the US the most. Although the temporary exemption provided under the USMCA (US-Mexico-Canada Agreement) provides relief for companies with extensive production networks in the US, Canada and Mexico, it was stated that the process is uncertain.

Price increase and change in production plans
While automakers are generally expected to increase their prices, it was stated that the impact of the tariffs on each brand and model will be different. It was reported that some manufacturers may have difficulty raising their prices sufficiently to meet the 25% tariffs and therefore may have to make “painful” changes in their production and sales plans.

Consumer confidence may weaken
It is expected that higher car prices will undermine consumer confidence and suppress sales. It was assessed that the tariffs could shift demand from imported vehicles to US-made vehicles, and this situation could especially benefit US-based manufacturers such as Ford.

Supply chain at risk
It was emphasized that the impact of the tariffs on auto parts is more uncertain due to the complexity of the supply chain. In addition to increasing costs, it was stated that there could be delays in the supply of parts during the transition period and disruptions in the supply chain. However, it was stated that the postponement of the tariffs on auto parts compatible with the USMCA temporarily mitigated this risk.

Short-term solutions for manufacturers
Fitch noted that major automakers such as General Motors have some flexibility to adjust production processes in the short term to minimize tariff impacts.

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Source: https://www.dunya.com/sektorler/otomotiv/fitchden-otomobil-ureticilerine-kredi-uyarisi-haberi-770346