Business

Toyota says U.S. tariffs on Mexico could cost its suppliers $1 billion

Reuters

Toyota Motor Corp. said Tuesday that U.S. President Donald Trump’s proposal to slap tariffs on Mexican-made goods could cost its major suppliers $1 billion, highlighting growing concern in the U.S. auto sector about the potential damage of a new front in the Trump administration’s trade wars.

Trump has said he will apply tariffs of 5 percent on Mexican goods next Monday if Mexico does not halt the flow of illegal immigration, largely from Central America, across the U.S.-Mexican border. Those tariffs would gradually rise to 25 percent by Oct. 1 if Mexico does not satisfy Trump’s demands.

Faced with this threat, major automakers are also planning to delay some vehicle shipments from Mexico, people briefed on the plans said Tuesday.

The shipment delays would affect vehicles with high inventory levels on U.S. dealer lots if the tariffs take effect. Automakers are trying to speed some critical parts shipments this week ahead of the Monday deadline.

Consultancy LMC Automotive said Tuesday the industry could absorb a 5 percent tariff for a month, but that a sustained period at the 25 percent tariff level will have a potentially devastating impact on the auto industry and cut U.S. new vehicle sales by up to 1.5 million units annually.

“A prolonged period of tariffs on Mexican imports would likely push Mexico into recession and could also threaten a recession in the United States,” LMC said.

In 2018, automakers sold 17.3 million new vehicles in the United States.

LMC said prices on models imported from Mexico could increase by an average of $8,500, while the average price of a vehicle sold in the U.S. market could rise by as much as $2,500 to $3,000 when parts for assembly in the United States are factored in.

In an email seen by Reuters, Toyota told its U.S. dealers the duties could cost its major suppliers between $215 million and $1.07 billion.

The email, dated Monday, from Toyota’s North American sales chief, Bob Carter, also told dealers that 65 percent of the Tacoma midsize pickup trucks the Japanese automaker plans to sell in the U.S. market in 2019 will be imported from its plant in Baja, Mexico.

“This is not just an issue for our company. These tariffs will have an effect industry-wide,” Carter said in the letter, which noted General Motors Co. is the largest automotive importer from Mexico. He also said Toyota remains hopeful negotiations between the U.S. and Mexico on trade and immigration policy will lead to a deal that can be “resolved quickly.”

The notice to dealers comes as Toyota has taken an unusually public stand against the White House’s trade policy, saying last month that threatened tariffs against auto and car parts from Japan sent a message to the company that its billions of dollars of investments in the U.S. aren’t welcome.

On Tuesday, Kevin Clark, chief executive at auto supplier Aptiv PLC, told investors at a conference in Boston that a 5 percent tariff will cost it around $17 million per month.

Speaking to reporters on the sidelines of a conference in Montreal on Tuesday, Steve Kiefer, senior vice president, global purchasing and supply chain at General Motors Co., declined to discuss how much tariffs could cost but said “the single biggest problem we have is the uncertainty with tariffs.” “Right now, we’re asking all of our suppliers to be calm and not do anything drastic,” Kiefer said.

Automakers are pressing Republican senators on Capitol Hill to contact the White House to try to convince the president not to move ahead with the tariffs, people briefed on the matter said. U.S. Senate Majority Leader Mitch McConnell said Tuesday there is “not much support” among his fellow Republicans for the tariffs.

Information from Bloomberg added