A U.S. Automotive Production Strategy Beyond Tariffs

Warren Browne, adjunct professor at Lawrence Technological University’s College of Business and IT and president of WP Browne Consulting, analyzed the impact of tariffs on automotive production.

In early April, the Trump administration increased duties on Canadian and Mexican vehicle imports. They also increased tariffs on European, Japanese, and Korean vehicle imports, while Chinese vehicle imports already had a 100% duty. The tariff response from trading partners was mixed; Canada and China increased duties on U.S. vehicle imports, and Mexico and Europe delayed their response as of this writing. The overall goal is to bring vehicle manufacturing back to the United States. However, the level of potential disruption goes beyond tariff increases, and the overall approach has the potential to retard investment.

Policy Clarity and Continuity: Mandatory for U.S. Production Growth

The leaders of Detroit 3—General Motors, Ford, and Stellantis—now face tough decisions in an environment of government policy confusion. Their near-term options are limited.

“Prediction is difficult, particularly when it involves the future,” Mark Twain’s quote echoes among auto leaders navigating Trump’s shifting demands for more U.S. vehicle production. The requests seem to change weekly and represent a break from two decades of policy stability.

The USMCA trade agreement, leveraging the original NAFTA agreement signed by President Clinton in 1994, was intended to provide policy continuity for decision makers allocating North American resources. The USMCA agreement represents a significant contract among three countries, American manufacturers, and consumers.

President Trump strongly disagrees with that trade agreement and the approach to free trade, even though he signed it. He now has a new solution and remedy: tariffs. As Trump stated in his address to the Economic Club of New York during the 2024 presidential campaign, “We will bring our auto-making to the record levels of 37 years ago, and we’ll be able to do it very quickly through tariffs and other smart use of certain things that we have that other countries don’t.” Stability and decades of supply-chain efficiency have been put at risk.

Commerce Secretary Howard Lutnick, Trump’s trade adviser, added confusion by claiming the Detroit 3 had excess capacity and were agreeable to looking at U.S. production expansion, even suggesting assembly shifts in six months (an unrealistic timeline). His remarks ignore the complexity of vehicle resourcing, except in rare circumstances.

GM, Ford, and Stellantis—along with suppliers—have made significant investments in their future that were compliant with automotive regulations and trade policy and remain competitive. The decisions represented long-term allocations of resources within North America.

Why would any of the Detroit 3 executives consider moving products out of Mexico or Canada without clarity on long-term automotive policy? They should not!

Negotiating a Policy Rubik’s Cube

Here are some critical questions that remain unanswered:

• What will be the level of tariffs, the rationale, and the length of time the tariffs will exist? The Voluntary Export Restraint program initiated by Japan (lasted 13 years), the existing Chicken Tax on light trucks (60 years), and the length of the current NAFTA/USMCA agreement (30 years) give notice that long-term policy stability is what moves the supply chain, not threats. What happens if only one company moves production back to the United States and the tariffs never go on? That company would be at a competitive disadvantage to those that did not move.
• Which sections of the Inflation Reduction Act will remain? This has major implications for the mix of gasoline and electric vehicles and which plants may be considered as impaired assets.
• Will the EPA change the CO2 standards? Rule changes could help the Detroit 3 bring back passenger cars rather than giving the market to Asian manufacturers.
• Will the UAW provide wage concessions as part of the overall scenario of moving production back to the United States?
• Can they get concessions from Mexico to keep production in the country? Every country considers automotive assembly as a point of industrial pride.

The Detroit 3 and their suppliers will need to consider all these questions before they pull the trigger on spending more money. There is no commercial recourse if Trump does not put on the tariffs. He would just say, “Sorry.”

Moving Production Back to the U.S. Before 2027 Would be Difficult

GM, Ford, and Stellantis do not have the excess U.S. capacity or additional unfunded programs to provide Trump something big before the end of his term. The baseline analysis that follows considers each company separately, assuming existing government policy as approved by Congress and no incremental tariffs. Short answer: there are extremely limited opportunities to move production back, with potential results significantly below the major shift that Trump proclaimed in his speech to the New York Economic Club.

United States Market Area
Light Vehicle Production (000’s) and Capacity Utilization (%)
Detroit 3 Vehicle Peerformance Tracker: Baseline

Source: WP Brown Consulting

Last year, the Detroit 3 reached 80% of U.S. capacity utilization, a level closely approximating full production. Moving forward, the reduction in overall capacity utilization is the result of underutilized battery-electric (BEV) capacity.

The Inflation Reduction Act has piled on more spending requirements, and EPA emission regulations are pushing the Detroit 3 out of the passenger car sector. While a few of the policies were very unpopular, manufacturers at least had stability through the end of the decade. Also true, the government has time to observe what customers really want and make policy modifications, if required.

If new policies are now implemented, they must be long-term policies that help manufacturers grow their battery-electric vehicle business, not destroy it.

Thus, there was already enough disruption in play before the current tariffs were launched. If new policies are now implemented, they must be long-term policies that help manufacturers grow their battery-electric vehicle business, not destroy it.

Note: The analysis below goes through 2027, a critical window for the Trump administration. Any promises of change beyond 2027 should be interpreted with a healthy dose of skepticism.

The analysis reveals that GM, Ford, and Stellantis already have multiple product launches through 2027. Additional work to move production from Canada and Mexico may not be feasible.

General Motors will upgrade eight programs in U.S. plants through 2027. Expect two additions to their portfolio, both BEV. Unfortunately, low customer acceptance of BEV pickup trucks and the elimination of Malibu will keep three plants underutilized (now-empty Orion and Fairfax Car and Factory ZERO).

Resourcing programs from Mexico or Canada by 2027 would be difficult given that all of them have been launched within the last three years. Importantly, there is not enough excess capacity at a single plant to move high-volume programs in Mexico back to the U.S. GM’s Mexican facilities each produce more than 200,000 units a year.

Ford will implement four major program changes through 2027. They will also add five programs at the same time, including low-cost products at Louisville.

Ford’s U.S. capacity utilization is high, except at the Ford Lightning facility (Detroit Electric) and Blue Oval (due to open mid-2026). The Mexico production of Mach-E (100,000 units), Bronco Sport, and Maverick (each with over 150,000 units) is too important to move before 2028. Lincoln Nautilus production could return from China to Chicago.

Stellantis will implement four major program changes through 2027. They will be working on key marketing programs to increase volume and support three program additions.

Overall, Stellantis U.S. capacity utilization is high. Three plants operate below 70% utilization (Warren Truck, Toledo Supplier Park, and now-empty Belvidere); however, no single plant has the excess capacity to produce the Ram heavy-duty pickup volume currently produced in Mexico.

The path to more U.S. automotive production is through productivity, competitiveness, and stable policies, including support for more export volume. There are paths to get there, such as improving the technical capability of the tool and die industry versus outsourcing from China. The current administration should concentrate on the carrots that investment incentives provide rather than the stick of tariffs. They can also ease the transition to more electric vehicles by getting Congress to extend the time required to meet CO2 requirements.

The best immediate policy is to stick with the current USMCA rules and negotiate any changes next year. This will give the government time to sort out all the other key regulations, like CO2 standards. It will also allow the Detroit 3 time to negotiate with suppliers, dealers, and the UAW to determine if the pain of tariffs can be shared. If pain sharing can’t be negotiated, then manufacturers should just raise the price on all their vehicles, imported and domestic, to cover tariff increases and give suppliers relief on tariff-induced cost increases. This will certainly have a negative impact on U.S. production and jobs. However, an automotive policy roll-out with continual modifications may end up being exhausting and lead to even more disruption at a time when Canada and Mexico are not the real threats.