Al Root

Some favorable news for auto investors is that President Donald Trump denied reports that he told car makers to not raise prices in response to his tariffs. But the fact that he wants the levies to permanent is a setback.

Investors aren't ready for that.

On Thursday, The Wall Street Journal reported that Trump had warned auto makers not to raise prices in response to his plan to place 25% import tariffs on all cars and key components starting on Wednesday.

That put auto makers between a proverbial rock and hard place. Tariffs, according to Wall Street, will raise the cost of a car by roughly $5,000 to $10,000. Without price increases, the impact on profit margins would be devastating.

Over the weekend, however, Trump told NBC News he didn't tell auto makers to avoid raising prices. "I couldn't care less if they raise prices," the president said, adding he believes people will start buying more cars assembled in the U.S.

The negative dimension is that the president also said he expects tariffs to be a permanent feature of the U.S. car business. That would be a disappointment because Wall Street reports on tariffs are littered with language hoping for carve-outs for Canada and Mexico, negotiated settlements, and something far less than 25% in the end.

The reason Wall Street is hoping for change is that tariff math just doesn't work for the U.S. auto industry. Ford Motor and General Motors generate a per-car operating profit of less than $4,000. They can't afford a $5,000 cost increase.

The car companies will adjust. Their initial moves won't be price increases, either. Ending dealer incentives will raise transaction prices by up to $3,000. The sticker price of a car won't change, but $1,000 cash-back agreements and subsidized interest rates won't be available.

Some executives are also considering calling tariff-related cost increases a surcharge. That is another way to bring in more money without changing list prices, although that will probably be easier for parts companies than for dealers facing consumers.

Tariffs will continue to be a big issue for the industry for the foreseeable future. Their impact on demand, pricing, and profits is still hard to suss out.

Investor have reacted to the uncertainty by selling car stocks. Coming into Monday trading, Ford, GM, and Stellantis shares were down 13% on average since the Nov. 5 election, about 10 percentage points worse than the S&P 500.

Ford shares were down 1.9% early Monday. GM and Stellantis shares fell 1.2% and 2.4%, respectively.

The declines have left the three stocks trading for less than five times the earnings per share expected for 2025, according to FactSet, down from closer to six times a year ago.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

March 31, 2025 10:26 ET (14:26 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.