Save Big With Ford's New Rebates and Incentives

The tariffs on imported vehicles and auto parts, set to take full effect by May 3, 2025, will significantly impact Ford Motor Company, despite the fact that a substantial portion of their vehicles are manufactured in the United States. Here's a detailed breakdown of the anticipated effects:

Increased Costs and Prices:

• Imported Vehicles: Ford imports some vehicles into the U.S., primarily from Mexico. These vehicles will be directly subject to the 25% tariff. This includes models like the Maverick pickup truck and the Bronco Sport SUV, which are manufactured in Mexico.1 The prices of these vehicles for consumers are expected to increase significantly, potentially making them less competitive in the market.

• Imported Parts: Even for vehicles assembled in the US, Ford relies on a complex global supply chain and imports a considerable number of auto parts. These imported parts, such as engines and transmission systems, will also be subject to a 25% tariff. This will increase Ford's production costs for its US-assembled vehicles. While Ford might absorb some of these costs, a portion will likely be passed on to consumers in the form of higher vehicle prices.

• Estimated Price Increases: While the exact price increases are uncertain, analysts predict that even vehicles not directly subject to tariffs could see price hikes of around 5% as automakers try to spread increased costs across their entire lineup. Vehicles directly impacted by the 25% tariff could see price increases in the range of 15%-20% or even higher in some cases.

Impact on Production and Supply Chain:

• Supply Chain Disruptions: Tariffs add costs and complexity to Ford's globally integrated supply chain each time components cross borders.2 This could lead to potential delays and disruptions in the availability of certain parts, affecting production schedules.

• Potential Shift in Production: If the tariffs remain in place long-term, Ford might be compelled to move some production to the US to avoid the levies. For example, the production of the Maverick pickup truck might be shifted from Mexico to the US. However, this shift would require significant investment and time.

• Increased Reliance on US-Sourced Parts: To mitigate the impact of the tariffs on imported parts, Ford may look to increase its sourcing of components from US-based suppliers. However, the capacity and cost-effectiveness of domestic suppliers to meet Ford's needs across all component areas remain a factor.

Impact on Sales and Consumer Demand:

• Decreased Sales: Higher prices across Ford's vehicle lineup are likely to dampen consumer demand, potentially leading to a decrease in overall sales volume. Price-sensitive consumers might delay purchases, opt for used vehicles, or choose less expensive models.

• Impact on Specific Models: The price increases on popular but imported models like the Maverick and Bronco Sport could significantly impact their sales figures. Ford might need to re-evaluate the competitiveness and long-term viability of these models in the US market under the new tariff regime.

• Potential Advantage for Domestically Focused Models: Models with a higher percentage of US-made content, like the F-Series trucks (F-150, Super Duty), which are 100% assembled in the US, might have a relative advantage compared to imported vehicles. However, even these models will face increased costs due to tariffs on imported parts.

Financial Implications for Ford:

• Reduced Profitability: Increased production costs due to tariffs on imported parts and potentially lower sales volumes could negatively impact Ford's profitability.

• Strategic Adjustments: Ford will need to make strategic decisions regarding pricing, production locations, and supply chain management to navigate the tariff environment. This could involve significant investments and potential restructuring.

• CEO Warnings: Ford's CEO, Jim Farley, has previously warned that prolonged tariffs on automotive products from Canada and Mexico would have a "huge adverse impact" on the entire US automotive industry, wiping out billions in industry profits and adversely affecting US jobs, while also leading to higher prices for customers.3 He noted that Ford has significant cross-border movement of automotive products with Canada and Mexico.

Overall Position:

According to analysts, Ford is relatively better positioned than some other automakers to weather the tariffs because approximately 80% of the vehicles it sells in the US are manufactured domestically.4 This reduces their direct exposure to tariffs on completely built-up imported vehicles. However, the significant reliance on imported parts means that Ford will still experience substantial cost increases.

Example:

The Ford Maverick, a popular compact pickup truck known for its affordability, is manufactured in Mexico.5 The 25% tariff on imported vehicles will directly increase its cost. Ford will have to decide how much of this cost to pass on to consumers, potentially eroding its key selling point of being a budget-friendly truck.

In conclusion, the tariffs will pose significant challenges for Ford, leading to increased costs, potential price hikes for consumers across their vehicle lineup, and possible disruptions in their supply chain. While their higher percentage of US-based assembly offers some buffer, strategic adjustments will be necessary for Ford to remain competitive in the evolving US auto market.