US Auto Tariffs to Hike Prices, Cut 2025 Sales Forecast: Fitch

The 25% tariffs imposed by the US government on imported vehicles and certain auto parts are expected to raise prices and reduce sales volumes, according to Fitch Ratings. The agency projects that US light vehicle sales will reach 16 million units in 2025, a decline of 300,000 from its initial forecast, citing higher vehicle prices and persistently high interest rates as key factors.  

“Consumer confidence will be further weakened due to price increases, pressuring sales,” Fitch stated. The agency also noted that demand may temporarily rise as consumers rush to buy vehicles before prices climb further, but sales are expected to moderate in the second half of 2025.

The tariffs apply to all automobile imports, except those meeting USMCA requirements. However, not all imports from Mexico and Canada comply. Currently, imports make up about 50% of the US light vehicle market, with Mexico as the largest foreign supplier, followed by South Korea, Japan, Canada, and Germany.

"Manufacturers meeting USMCA standards can certify US content, and tariffs will apply only to non-US content," Fitch explained. Additionally, tariffs on USMCA-compliant auto parts will be postponed until a system to identify US-origin components is established.

The impact of the tariffs will vary among automakers depending on production locations and supply chains. Companies with heavy reliance on Japan, South Korea, and Germany will face the most significant challenges.

For Volkswagen, the tariffs will hit its luxury segment, including Porsche, straining cash flow and credit rating margins. Toyota and Hyundai, which derive about a quarter of their global sales from the US market, will also be affected. Approximately 60% of Hyundai’s US sales originate from South Korea, making them subject to the 25% tariff, compared to 23% of Toyota’s sales from Japan.

“For other manufacturers with strong production footprints in the United States, Canada, and Mexico, the initial exemption provides temporary relief, but cost increases remain a concern,” Fitch stated. The agency noted that Stellantis and Nissan face negative credit outlooks due to their exposure in Mexico and Canada.

Automakers are expected to raise prices across their product lines, but the impact will vary by brand and model. Some manufacturers may struggle to pass on the full 25% tariff cost to consumers, forcing production and sales strategy adjustments.

The tariff policy could shift demand toward US-manufactured vehicles, benefiting automakers like Ford. However, the extent of this shift may be limited, as many US-made vehicles, including full-size pickup trucks and SUVs, do not directly compete with the imported vehicles most affected, such as smaller SUVs, passenger cars, and luxury models.

The impact on auto parts remains uncertain due to the complexity of supply chains. Beyond higher costs, the transition may lead to delays in parts delivery or disruptions similar to those seen in 2021-2022. However, the delayed application of tariffs on USMCA-compliant parts offers temporary relief.

Fitch noted that manufacturers like General Motors have some short-term flexibility in adjusting production to mitigate tariff impacts. However, major investments in US auto and parts manufacturing will require greater political certainty and assurance that tariffs will remain in place over the investment horizon.

The US tariffs are part of broader trade policies that could further disrupt the global supply chain. The United States has also imposed additional 10% tariffs on Chinese imports under Section 301, and new tariffs on steel, aluminum, and copper are under consideration.

Internationally, affected countries have begun to respond. Canada has lodged a WTO complaint over US steel and aluminum tariffs. China has implemented retaliatory tariffs, while Japan, China, and South Korea have agreed to strengthen supply chain cooperation to counter the impact of US trade policies.