The Trump administration has imposed tariffs on imports from Canada and Mexico, putting Stellantis NV's Jeep, Ram, Chrysler, and Dodge brands at a disadvantage against their European and Asian competitors. According to an email from the company to its dealers in the United States, these measures will generate higher costs in a highly price-sensitive market.
Todd Duvick, an analyst at CreditSights, noted that Stellantis NV sold new debt with risk premiums due to the imposed tariffs. Other companies like Paccar Inc., a truck manufacturer, have also faced similar situations. Duvick mentioned that car manufacturers might have to absorb some of these costs instead of passing them on to consumers.
A study by Anderson Economic Group suggests that tariffs could increase car prices in the U.S. by up to $12,000. Stellantis NV has halted production at its plant in Ontario, leaving about 3,000 employees in limbo. Additionally, car manufacturers could be particularly affected due to the fluid movement of goods across North American borders during the manufacturing process.
Adrienne Young of Franklin Templeton Fixed Income warns that tariffs could have a global impact on credit markets and Canadian auto manufacturers. Despite concerns, Stellantis has refused to comment on the matter. For their part, leaders in the U.S. auto industry have expressed that the extension of tariffs could severely affect profits and employment in the sector.
Bonds from auto manufacturers have experienced an increase in their yields and prices, reflecting uncertainty in the market. Stellantis has advocated for tariff exemptions for vehicles manufactured in North America that meet the USMCA standards. U.S. Secretary of Commerce Howard Lutnick has mentioned the possibility of easing measures for goods that comply with this agreement.
The possibility of a trade war raises concerns among investors, and some are closely monitoring potential downgrades to the credit ratings of auto manufacturers. In light of this situation, Manuel Hayes of Insight Investment believes there could be short-term volatility in the market.
