Getting away from most economic sectors, the U.S. auto industry has had a seat at the negotiating table to discuss about the tariffs isssue. The auto industry had the change to negotiate carveouts to President Donald Trump’s tariff agenda early on, giving markets a sign that the duty rollout would be well-thought-out and surgical.
That previous indication has not turned out to be the case, as the promise of targeted “reciprocal” tariffs has been placed again by the reality of 10% tariffs across the board (with exceptions for Canada and Mexico) and 140% tariffs against China.
It must be highlited that Markets hate uncertainty, and after an unreal rollercoaster week that saw historic drops and rises, it is no wonder the Cboe Volatility Index, better known as the VIX or Wall Street’s fear gauge, soared as high as 57.52 points during Tuesday’s session- the first time it has closed above 50 since April 2020. This is a historic event that has been a turning point in the economy over the last twenty years.
Japanese automakers already started anticipating the damage to their sector during a March meeting of the Japan Automobile Manufacturers Association (JAMA), according to a report from Automotive News. JAMA Chairman Masanori Katayama explained that they will be looking at how to absorb short-term shocks and what concrete measures we can take to deal with these shocks, as well as how to deal with them in an all-Japan way.
In addition, Katayama commented the group discussed its strategies to absorb and mitigate potential tariffs with the country’s Ministry of Economy, Trade and Industry officials. At this point, the plans for at least one JAMA group member have been revealed.
Mazda Will Bite the Bullet, for Now
This week, Mazda sent a letter to its U.S. dealers providing information to them about that it would not raise its sticker prices or tack on relevant fees for any vehicles already on dealership lots or that will come into the country before May 1. In fact, the letter, which the Wall Street Journal viewed, is Mazda’s response to the 25% tariffs on car imports. Despite Mazda having a plant near Huntsville, Alabama, that only makes up about 20% of the vehicles you see on American roads. Most of the Mazdas sold in the U.S. are built in Japan and Mexico, which is a piece of information that should be taken in consideration.
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The company expects tariffs to “have a significant negative impact” on the industry and its business and is thinking about hot to reduce costs elsewhere, the Journal reported. So, for now, the plan appears to be to do nothing. The company will have to pay more to import its vehicles, but it is willing to pay that cost for at this time. Thanks to its decision, the company will absorb about $100 million in tariff-related costs in April. Markets did not like this new situation, sending Mazda shares down nearly 4% Friday in Tokyo trading.
The Alarm of Tariffs is Already Sounding
This isn’t the first industry document to leak about the tariffs. In March, about 2 weeks after the President gave automakers a 1-month exemption on goods from Mexico and Canada, Ford management sent a memo detailing the Blue Oval’s plans. Actyally, Ford’s chief supply chain officer, Liz Door, said that the Blue Oval is “strategically stockpiling components where it is cost-effective and parts that are not pending engineering changes” before the last they of presentation.
The memo said that the automaker is reviewing its logistics routes and border crossing plans to maximize shipping efficiency too.
“As the situation continues to develop, we require all suppliers to continue shipping parts in accordance with existing contractual terms, including pricing and delivery schedules,” Door explained.
