Carmakers have now hit reverse, with agency Fitch downgrading the global automotive industry from ‘neutral’ to ‘deteriorating’, as tariffs weigh down hard on parts and car sales.
Fitch predicts this will likely lead to production cuts and increased costs, hit carmakers' profitability and drive up prices for consumers and other end users.
The auto industry was one of the first to be hit by the Trump administration’s import levies into the United States.
On 26 March, the U.S. imposed a whopping 25% tariff on all imported automobiles and certain auto parts which went into effect on April 2, despite a 90-day delay on other announced import taxes in other industries.
“This measure poses a significant risk for automakers importing vehicles manufactured in Mexico, Canada, Japan, Korea and Germany to the U.S.,” Fitch said.
Negative rating pressures have increased for businesses whose credit profiles are already strained by restructuring charges, reduced production levels, and challenging market conditions in China, leading to lower rating headroom.
Increased risk to be worn by consumers
Fitch expects automakers to raise prices across the world to offset the U.S. tariffs, although prices for brands and models may vary.
The sector had been propped up by the U.S. and Chinese automotive markets, which supported the ‘neutral’ outlook up until the end of 2024.
However, Fitch says that’s now faltering due to weakening consumer demand driven by tariff-related uncertainties and potential price hikes.
“We reduced our 2025 U.S. light vehicle sales assumption to 15.2 million from 16.3 million earlier this year… [and] we also cut our European sales assumption to 12.5 million from 13 million,” Fitch said.
“Although we expect direct tariff implications to vary among automakers, depending on their production footprint, pricing power and supply chain configuration, no issuer will be fully immune to declining consumer confidence and lower automotive demand.
“Some automakers might struggle to raise prices sufficiently to cover the 25% tariff and will have to make painful adjustments to production and sales plans.
“However, this may not be enough to fully absorb cost pressures, and profit margins may shrink considerably in 2025.”
