Al Root

President Donald Trump is preparing a statement on automotive import tariffs for Wednesday afternoon after the market closes for trading, around 4 p.m. Eastern time.

The industry is hoping for good news -- more delays, lower tariffs, or carve-outs for the auto industry. And it isn't ready for anything but a good outcome.

The stakes are high: Trump's proposed 25% tariffs on Canadian and Mexican imports threaten to upend the auto industry, destroying billions in profits.

It's relatively easy to see how profits would evaporate. Millions of cars are manufactured in Canada and Mexico and imported to the U.S. What's more, 50% or more of the parts on many popular models assembled in America come from Canada and Mexico.

Estimates of cost increases from new tariffs are in the thousands of dollars per new car. Higher costs could turn into higher prices, destroying demand for new cars. Any impact would be uneven, though. The Chevy Equinox is made in Mexico. The Toyota RAV4 is built in Ontario, Canada. The Ford Escape is made in Kentucky. It isn't easy to untangle 30-plus years of free trade.

Wall Street and investors, frankly, look asleep at the wheel prepping for tariffs, preferring to believe the worst outcomes won't happen. Coming into Wednesday trading, Ford Motor and General Motors shares were down just 2% and 3% since the Nov. 5 election.

Most automotive experts don't believe tariffs will ever happen, says RBC analyst Tom Narayan, adding they would be "so destructive to the auto industry." He characterizes tariffs as a potential "disaster" but a "low probability" disaster.

Wall Street seems to be waiting to see what happens. It expects profits for major U.S. auto markets and parts companies to remain flat year over year in 2025. No significant tariff impact is baked into the numbers.

UBS analyst Joseph Spak has prepped some scenarios. "Depending on the hour you look at your [stock market] screen, auto tariffs are either coming or not coming," wrote Spak on Wednesday. "Our view remains that sustained auto tariffs on Mexico and Canada at a 25% level are unlikely."

Still, he projects the earnings impact of 25% tariffs with no relief for the industry and no price increases for automakers. Under that scenario, both Ford and GM will lose money in 2025, Spak writes. About $18 billion in incremental costs will not be recovered.

The most benign scenario imagined is 25% tariffs on parts and cars that don't comply with existing trade laws. That would eliminate less than 15% of the forecasted operation profit.

Overall, Wall Street expects Ford, GM, Stellantis, and Tesla to generate about $32 billion in 2025 operating profit, roughly flat with 2024. Including major parts suppliers in the mix brings operating profit to about $37 billion for 2025 and 2024.

"We think the administration's proposed tariffs are largely being driven by frustration with the fact that the U.S. imports over three times the value of automobiles it exports," wrote CFRA analyst Garrett Nelson in a recent report, adding that Mexico is a more significant exporter to the U.S. than Canada.

The president wants to make more things here, but it would take years and tens of billions in capital to completely reorient North American production. It is difficult to estimate just how punitive tariffs would have to be to achieve his goals.

In the meantime, car companies can import products ahead of any tariffs and adjust limited production while they wait to see what's next.

Ford and GM shares were down 0.9% in midday trading Wednesday, while the S&P 500 and Dow Jones Industrial Average were off 0.8% and 0.1%, respectively.

Write to Al Root at allen.root@dowjones.com

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