BREAKING NEWS: US Automakers Granted 30 Day Tariff Exemption!

The Car Chick (00:02)
Hey everyone and welcome to a special unplanned bonus edition of The Straight Shift. Some important things have happened in the news this week and I’ve been getting a lot of questions from people about the tariff situation and which cars are going to be affected, will it affect all makes and models, and a lot of people asking should I buy now versus wait and see what the heck happens. So I wanted to release this bonus episode and talk about

the exemption that the big three automakers got from the White House this week after the tariffs went into effect with Mexico and Canada. Automakers have been officially granted what they’re calling a one month exemption from these 25 % tariffs that are now in effect on other goods from Canada and Mexico. So under pressure from the big three Ford, GM, Stellantis,

formerly known as Chrysler. The CEOs of those companies had an emergency meeting with the president to talk about just how devastating these tariffs will be on the automotive industry and to bargain for more time to get things figured out. Before we get into too many details, I want to clarify that this exemption only applies to vehicles that comply with

the United States Mexico Canada agreement. They get a 30 day exemption that will lift on April 2nd unless it is extended. So what the heck is this United States Mexico Canada agreements we call USMCA? The USMCA is a trade deal that went into effect in 2020. It replaced NAFTA, the North American Free Trade Agreement of 1994.

The goal of the new agreement was to modernize the North American trade relations because we hadn’t really revisited them much since 94. So they were a little out of date. The goal was to try and shift more auto production back to U.S. soil. Back in 1994, only about 6 percent of North American vehicle production was in Mexico. But in 2024, Mexico accounted for roughly 27 percent.

of North American vehicle production. The U.S. produces about 65 % and Canada is around only 8%, although Canada produces a large number of the parts that go into cars, including engines and transmissions. So this represents a loss of about 350,000 U.S. auto manufacturing jobs. So it makes sense that we might want to look at how do we make that better? How do we shift some of that back and get back some of those U.S. jobs?

So under the USMCA, the rules are 75 % of a vehicle’s parts have to be sourced from North America. It was only up to 62 and a half percent under NAFTA. So 75 % was a significant increase in the requirements of the parts to be sourced from North America in order to qualify for tariff free trade. Additionally, it mandates that at least 40 to 45 % of the

The of the automobile has to be produced by workers who are earning at least $16 an hour. This was to encourage higher wages and reshape the supply chain. Because why did this auto manufacturing shift to Mexico? Hello? Cheaper? Labor? This should not surprise anyone, and it’s not just the US manufacturers that shifted down to Mexico. Everyone did.

Nearly every major automaker makes at least one vehicle in Mexico, along with places all over the world. It is a very, very complex supply chain and manufacturing system all over the globe. The United Auto Workers were really in favor of this because obviously their primary concern is American jobs and American wages in the automotive industry. And their average

wage today is about $21 an hour for the production folks. On the other hand, in Mexico, those same auto workers average about $5 an hour, which is actually a good wage in the Mexican economy for an entry level worker. But it does take jobs away from the US. The primary goal of the USMCA was to boost US auto production and regrow those lost jobs. On the flip side,

They knew that it would also increase manufacturing costs for the automakers and consumers because of the increased labor. That is always a trade-off. The question is, has it actually worked so far? A little bit. It’s had a mixed impact, I would say, on bringing auto manufacturing jobs back to the U.S.

It has encouraged some what we call reshoring, which is deciding to move production of a particular vehicle from one country to another and making more investments in the United States manufacturing for the automotive industry. But it’s been very small and very gradual. It hasn’t had this massive immediate reversal of lost American jobs. That’s impossible. That is never going to happen. It’s too complicated. But on the positive side, it has increased investment.

automakers and suppliers have announced billions of dollars in new U.S. investments. For example, Ford, GM, and Stellantis all expanded production in states like Michigan, Ohio, and Kentucky. Honda expanded production at their Indiana plant and their Ohio plant. Subaru expanded production in their Ohio plant. So we are seeing more investment being made on U.S. soil by the automakers, and that’s good.

It’s also led to higher wages in Mexico. So it has helped their economy and their workers as well to meet the labor provisions. So it’s reducing the gap. So it’s not necessarily bringing jobs back to the U.S., but it is increasing the amount of money that the Mexican workers make, which arguably they should make more as well. But the goal was to try to reduce that cost gap.

not to help the Mexican workers per se, but to make it more competitive between the U.S. and Mexico in terms of wages, to make it less attractive for the automakers to move the production down to Mexico looking for that cheap labor. Another place that has helped is in the battery and EV manufacturing growth areas. The shift to electric vehicles

combined with the incentives under the USMCA has led to new investments in the US in battery plants, especially in the Midwest and the South and areas again where there are no unions. That’s where they kind of get the best bang for their buck and more equal wages. So as we see EV technology progress, we’re going to continue to see more of these investments. So on that side, the agreement has been very positive.

But the challenge has been that job growth has been very, very modest. Some have returned, but they’re also looking at ways to automate. So they’ll bring the production back to the U.S., but they’ll build it with robots instead of humans to try and keep the vehicle costs down because we can only absorb so much cost increase on vehicles. Companies as a result are still expanding in Mexico because it is still cheaper.

to produce their overall, especially for their smaller lower margin vehicles, more their entry level, some of their smaller sedans, they don’t have a lot of profit margin on those anyway. So it makes sense maybe to produce some of those in Mexico and be able to keep those costs low. So there might actually be some new cars that we can afford in America, but then keep the higher end cars produced in the US where there’s a little more consumer tolerance for a higher price tag.

I think we’ve all kind of reached our limit on that lately. But the problem is it takes time to make these changes in the industry. You can’t just overnight move production or increase production. It doesn’t work that way. It takes time to build new plants, to expand existing plants, to retool existing plants, to move production of specific makes and models around the world.

to try to get more favorable position in these trade agreements and to be able to meet the requirements of this particular agreement. And so with the tariffs coming in so hard and so fast, it’s left everybody spinning, including the automakers. And so that’s what the CEOs of the Detroit Three have been hammering into the White House.

And this is how they successfully negotiated this 30 day exemption because hello, we’re trying to make these investments, but it ain’t happening overnight. And even 30 days is nowhere near enough time to make any impactful changes. It literally takes years to shift this production back to the U S and they have to figure out how they can even do it and offset the increase in their manufacturing costs that would result because again,

Cars are expensive enough. New cars, on average, are over $48,000. It’s insane. So how exactly are we going to absorb more costs for cars? It’s not going to happen, especially right now in the US economy. So some other solutions are going to have to be found. And the 25 % blanket tariffs on goods from Mexico and Canada

That could increase vehicle costs by anywhere from $4,000 to $12,000, according to analysts from the Anderson Economic Group. And guess what? That’s going to get passed on to us consumers, because the automakers can only absorb so much. But so can we as consumers. We already can’t afford these cars. Can you imagine if the average cost of a new car in the US suddenly jumped to $60,000? Yeah, that’s not going to fly.

And it’s not just about the cars being produced in the U.S. It’s about the parts supply chain. And things go back and forth across the borders multiple times between Mexico, the United States, Canada, and back during the production of just one automobile. So before a car ever gets sold in the U.S., the parts that put it together and its assembly, things may have crossed borders a dozen times.

And if you’ve got to pay tariffs every single time, that is going to jack that car price up and fast. So that will completely defeat the purpose of the trade agreement because the part suppliers can absorb those costs. The automakers can absorb a little, but the poor part suppliers that have tiny, tiny profit margins, they can’t do it. And they’ve already said they will go out of business in a matter of months. And many of them are already looking

How can we move production to Malaysia, Thailand, Kuala Lumpur, other countries where we have cheap labor and we can keep making parts at a reasonable cost, but not be affected by the tariffs. And so we’re just going to end up with this insane expansion of tariffs if we’re really trying to force these things to be produced in the United States at the higher prices. just will not, the market won’t support it.

So until they can figure that out, there’s going to be a big problem and it could cost in the short term, 3 million US jobs. It’s few more than the 350,000 that it has already cost us. So these were the points that the CEOs of Ford and GM and Stellantis were hammering into the president this week to get that 30 day extension. Allows him to save face a little bit, but I’m hoping that they’re gonna continue to put that pressure on the White House.

to come up with an actual feasible solution to this. How do we do it realistically? And in the timeframe that it’s just quite frankly going to take, it’s not gonna happen overnight. And with reciprocal tariffs being inevitable too, it could literally destroy the US auto industry in less than six months. So let’s talk about what vehicles would be most and least impacted if these tariffs do go into effect.

And this is just referring to the tariffs between Canada and Mexico and the US. I’m not even touching on the 20 % tariffs that are now being charged on Chinese goods, which were up from 10%, which was imposed by the last administration. So of all the automakers, Ford imports the least number of vehicles. They make about 78 % of the cars, trucks, and SUVs domestically that are then sold in the US market.

However, certain key models are made in Mexico. The Ford Bronco Sport, the Ford Maverick, which they’re already having problems with because there’s been a stop sale on those, and there’s high demand for it, that’s in Mexico. The Mach-E electric vehicle is made in Mexico, and the Mustang GTD, that’s made in Canada. Who’s going to be affected the most?

Mazda, Volkswagen, and Mercedes import the most cars that are sold in the US, and this is according to data from Edmunds. Only 20.3 % of Mazda vehicles sold in the US are actually made here. Granted, most of them are made in Japan, but the little Mazda 3 and the entry-level CX-30 SUV, because those are more entry-level vehicles, they are produced in Mexico.

About 27.8 % of all the Volkswagen groups, that’s a Volkswagen, Audi, Porsche, those are produced in the US. Everything else is overseas. A lot of them come out of Mexico. About 36.5 % of all Mercedes are made in the US, leaving the rest made outside, whether that be in Germany or Mexico or other countries. As for General Motors, the Chevy Blazer and the Blazer EV,

Chevy Equinox and its electric version and the GMC Terrain, those are all made in Mexico. With Stellantis, formerly known as Chrysler, the Ram trucks, the Heavy Duties, the 2500s up to the giant 5500s, those are all made in Mexico. The ProMaster cargo van is made in Mexico, along with the small Jeep Compass, and then the Chrysler Pacifica minivan is produced up north in Canada. Looking at

Honda Acura. So this is not just the American automakers or the European ones that are affected. The Japanese automakers are also affected. The Honda CR-V Hybrid is made in Canada along with the Civic Sedan, although they had already been planning to move Civic production to their plant in the US. But the little Honda HR-V is Mexico. The Honda Prologue, which I’ve talked before, it’s a Chevy Blazer. It’s made at the same plant in Mexico as the Chevy Blazer.

And then the Acura ADX, that’s their new entry level luxury SUV, also made in Mexico. Although Honda does pretty well, almost 60 % of Honda Acura vehicles sold in the US are actually made here. Honda made a huge investment over the past several years, about over $3 billion into US auto production. That was already in their plan.

Now, granted, Trump did say this week that Honda is planning to build a new plant in Indiana, and he was praising them for it. That left the Honda executives a little perplexed because they’re like, thank you, but we have no such plans, have made no such announcements. We already have a plant in Indiana. We built that in 2008. So perhaps he was referring to

the large investments that overall Honda has made. So good for them, but no, they’re not building a new plant in Indiana. They already have one. On the Toyota Lexus side, believe it or not, the Tacoma is made in Mexico. The very popular RAV4 and RAV4 hybrid, those are made up in Canada. And then the Lexus NX and RX and their hybrid versions are also produced in Canada.

The South Korean manufacturers right now they’re in a pretty good shape. They’re not going to be impacted as much. Only the Hyundai Tucson and the Kia K4 are currently made in Mexico. Hyundai and Kia, they’re owned by the same parent company. They make almost 40 % of their vehicles for the US market in the US. The rest are made in South Korea. So right now they’re OK. But again, with the tariff threats, that could change.

and they do still source some of their parts. So it’s not just a matter of is the car actually made in the United States. Remember, 75 % of the parts have to be sourced at least from North America. So right now that’s protected under the current trade agreements, but 25 % new tariffs would blow that agreement out of the water and cause all the problems for basically every manufacturer. The vehicles I’ve listed is

far from the full list that will be impacted. So it’s at least 40 makes and models that the experts have counted so far that are going to be affected if these tariffs do in fact go into effect and the automakers cannot continue to negotiate delays or some alternative solution with the White House. So I wanted to go over it this week because so many people have been asking me about it.

and I will try to keep you guys up to date. Going forward, I’ll try to create little news blast updates, shorter videos, and I will release those to YouTube and to my social media, Facebook, Instagram. I am not on X. I’m not gonna be on X, so don’t look for me there. But if you wanna keep up with breaking news…

Be sure to follow me on YouTube and either Facebook or Instagram or both because the little updates are going to come there. If it’s big enough and works in my podcast schedule, I will make it an episode of the straight shift. But when important things happen and as quickly as things are changing, I want to get the information out to you guys quickly. So thanks so much for tuning in. I appreciate it. And we’re all just kind of holding our breath with these tariffs. But the one month delay that the big three negotiated this week.

Whew, we can breathe for another month. Should you buy your car sooner rather than later? Might not be a bad idea, because we just don’t know what’s going to happen. Thanks everybody. I’ll talk to you later. Drive safely.