GM and Ford Whipsaw as Mexico Acts to Avert Trump’s Tariffs

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Both General Motors (NYSE: GM) and Ford (NYSE: F) opened sharply lower today after President Donald Trump slapped a 25% tariff on imports from Mexico and Canada. However, they soon recovered after Mexico announced that the US would delay tariffs by a month as Mexico agreed to deploy border troops to check illegal immigration to the US.

“We had a good conversation with President Trump with great respect for our relationship and sovereignty; we reached a series of agreements,” said Mexico President Claudia Sheinbaum in a tweet in Spanish.

She added, “Mexico will immediately reinforce the northern border with 10,000 members of the National Guard to prevent drug trafficking from Mexico to the United States, particularly fentanyl.”

GM and Ford Shares Whipsaw as Trump Delays Tariffs

Ford and GM shares recouped their losses following the announcement of Trump delaying tariffs.

The automotive industry in North America is quite integrated and the tariffs are disruptive for US auto majors. Notably, Canada, Mexico, and the US were covered under the NAFTA (North America Free Trade Agreement) which Trump renegotiated in his first tenure. In July 2020, the USMCA (United States-Mexico-Canada Agreement) replaced the NAFTA which had come into effect in 1994. The USMCA is also scheduled for a review in July 2026.

Trump’s Tariffs to Hit US Automotive Industry

For years, the US automotive industry benefited from lower production costs in Mexico and global auto giants set up plants in that country. The tariffs are however set to negatively impact companies like Ford, GM, and Volkswagen as they all have manufacturing footprint in Mexico and Canada.

In its report prior to the tariff announcement, S&P Global noted, “There are approximately 5.3m light vehicles built in Canada and Mexico, with about 70% of these destined for the US. Further, many US-built vehicles use Canadian or Mexican-sourced propulsion systems and component sets; those components would see a tariff as well, increasing costs for vehicles produced in the US.”

The report adds that 22% of vehicles sold in the US last year were imported from either Canada or Mexico. Specifically, GM sourced 22% of its vehicles from Mexico last year while the corresponding number was 15% for Ford.

Some of the global automakers have an even bigger production footprint in Mexico and Volkswagen sourced 43% of its US sales from Mexico while Nissan sourced 27%. Toyota and Hyundai are relatively less exposed to Mexico and only about 8% of their US sales in 2024 were sourced from Mexico.

GM on Tariffs

Meanwhile, in her letter accompanying the Q4 2024 earnings release, GM CEO Mary Barra alluded to possible changes related to tariffs and taxes under the Trump administration

“There is uncertainty over trade, tax, and environmental regulations and we have been proactive with Congress and the administration,” said Barra. She however added, “In our conversations, we have stressed the importance of a strong manufacturing sector and American leadership in advanced technologies.” We will hear from Ford later this week when the company releases its Q4 earnings.

GM Posted Better Than Expected Q4 Earnings

Meanwhile, GM posted better than expected numbers in Q4. The company’s sales rose 11% in the quarter to $47.7 billion and came in well ahead of the $43.93 billion that analysts were expecting. The company’s adjusted EPS was $1.92 in the quarter which was also better than the $1.89 that analysts were modelling.

Looking at the full year numbers, GM reported a net profit of $6 billion which was short of its guidance. However, the company incurred special charges of over $5 billion in the final quarter of the year, the bulk of which was due to the impairment of its assets in China. GM also exited the robotaxi business last year and incurred charges to the tune of $0.5 billion towards the same.

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GM Provided Upbeat Guidance

General Motors expects to post adjusted pre-tax earnings between $13.7 billion-$15.7 billion in 2025 as compared to $14.9 billion last year. Notably, GM raised its 2024 guidance in the previous three earnings calls even as several other global automakers cut their forecasts amid tough macro environment – particularly in China.

GM expects its wholesale EV shipments to rise to 300,000 in 2025 as compared to 189,000 last year. The company reiterated its previous forecast of EV losses narrowing by between $2 billion-$4 billion this year.

The guidance looks encouraging as Tesla’s US deliveries fell YoY last year for the first time. GM is however optimistic about growing its EV deliveries. “We do think that we can grow our EV demand,” said GM CFO Paul Jacobson.

He added, “We’re going to continue to see how EV adoption progresses in 2025, but the 300,000 is the assumption that we base on being at the low end of the $2 billion to $4 billion of profit improvement.”

Despite the expected improvement in EV profitability, GM’s 2025 guidance is not much different from the 2024 numbers which can be attributed to the softness in the ICE business.

“We’re assuming modest headwinds in wholesale volumes and mix as we appropriately balance production and dealer inventory levels. We’re also assuming a pricing decline in North America — one to one and a half percent year-over-year,” said GM CFO Paul Jacobson.

Automakers Take a Sign of Relief

Meanwhile, automakers have taken a sign of relief after reports of Trump delaying tariffs on Mexico which is a key sourcing destination for both Ford and GM. The tariffs, if imposed would hit the US auto giants at a time when there are fears of them hitting peak profitability in the internal combustion engine (ICE) business.

About Mohit PRO INVESTOR

Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA in finance as a major. He has over 15 years of experience in financial markets. He has been writing extensively on global markets for the last eight years and has written over 7,500 articles. He covers metals, electric vehicles, asset managers, tech stocks, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.