On May 5, Andre Salvi, SVP and Head, North American Dealer Finance, moderated a discussion with two BMO experts who shared their insights on the impacts of the current trade environment on the U.S. and Canadian auto industry. Erik Johnson, Senior Economist & Vice President, BMO Economics, and Tamy Chen, CFA Consumer Analyst, BMO Capital Markets, helped put the situation into context, offering their perspectives on the potential economic and industry effects of the current U.S. tariff policy.  

A summary of the key insights follows. 

Salvi asked both Chen and Johnson to offer their key takeaways regarding how the auto industry should consider the current tariff environment. Johnson said it’s important to focus on the parts of the business that you can control. “The fixed-operations and service side isn’t as directly affected by tariffs and might even benefit from it if it means the average consumer is holding on to a vehicle for a little longer.” 

For Chen, it was the fact that the latest changes to auto industry-specific tariffs were a bit encouraging. “They’ve removed the stacking of tariffs, so if you’re paying auto tariffs, you’re not also paying steel and aluminum tariffs on top of it,” she said. “And they’ve made USMCA-compliant auto parts coming into the U.S. exempt. The best outcome is that this uncertainty resolves sooner than later, because the auto industry cannot progress meaningfully forward if manufacturers and suppliers believe these policies are still subject to significant change going forward.” 

Johnson noted that much of the uncertainty stems from a lack of visibility into what the future may hold. “No one really has a good sense of what the rules of the game are going to be for the next week let alone the next 3, 5, or 10 years,” he said. “So that makes it more challenging to operate.” 

For now, Johnson said it’s safe to assume that 10% baseline tariffs will remain for the foreseeable future. The big question for the economy is how long the more punitive measures—such as the 145% levy on goods from China—will continue. The impacts will trickle down from ocean freight volumes to port activity to trucking and rail, ultimately impacting the labor market and retail prices. Ahead of the tariffs, the U.S. gross domestic product decreased at an annual rate of 0.3% in the first quarter. 

“If they don’t relent [on the more severe tariffs], you’re more likely to see a more meaningfully weaker forecast for the U.S. going forward,” Johnson said. 

Given the staggered approach to tariffs on the auto industry, Chen said the response from U.S. auto manufacturers so far has been muted, while large Canadian suppliers haven’t experienced much of a direct impact. “That’s because the policy from the U.S. has been so volatile and still might change,” Chen said. “Manufacturers are in a tough place. No one’s going to make big decisions changing their production volumes or footprint locations when that policy is whipsawing.” 

Chen noted that March and April U.S. vehicle sales saw a bump as consumers rushed to purchase new cars ahead of a potential price increase later in the year. But as the year progresses, Chen sees potential direct and indirect impacts to the industry. 

“Going forward, we could see more manufacturers announce halting of production on their most tariff-exposed platforms,” Chen said.  

Chen said that while the stated goal of the tariffs is to bring more manufacturing back to the U.S., that’s an expensive and complex undertaking that will take years to complete. And while it’s less of an issue for the Detroit Three automakers (Ford, General Motors, and Stellantis), which already make their vehicles in North America, there are other potential opportunities. 

“The Detroit Three, where their vehicles are being tariffed less, they may get some market share from imported vehicles,” Chen said. “And if the foreign manufacturers want to establish production facilities in North America, that’s an incremental opportunity for suppliers in North America.”