Fitch Ratings lowers global auto outlook due to tariffs, forecasts 6.7% fall in US sales

HOUSTON (ICIS)–Fitch Ratings lowered its global automotive sector outlook to “deteriorating” from “neutral”, and lowered its US sales forecast by 6.7% to 15.2 million from 16.3 million because of US tariffs on auto imports.

“Tariffs are likely to lead to production cuts and increased costs, potentially driving issuers’ profitability,” the ratings agency said.

On 26 March, the US imposed a 25% tariff on all imported automobiles and certain auto parts, which went into effect on 2 April despite a 90-day delay on other announced tariffs.

“This measure poses a significant risk for automakers importing vehicles manufactured in Mexico, Canada, Japan, Korea and Germany to the US,” Fitch said.

Patrick Manzi, chief economist at the National Automobile Dealers Association (NADA), said that if tariffs go into effect as planned, he expects vehicle prices to increase, sales to decrease, and production to fall – although the degree is difficult to quantify.

US March sales of new light vehicles jumped 11% on a seasonally adjusted basis from February as buyers rushed to make purchases ahead of the automotive tariffs.

ICIS senior economist for global chemicals Kevin Swift said the surge was likely from consumers and fleet owners pulling forward purchases to beat the new tariffs.

Some respondents in the US Federal Reserve’s Beige Book agreed with Swift’s assessment.

Some auto dealers in the Cleveland Fed region reported that the threat of tariffs drove customers to make purchases before potential price increases.

“Several retailers had difficulty forecasting the impacts of policy and economic uncertainty on consumer demand, and they worried that consumer spending would pull back further,” the Cleveland Fed said.

The Beige Book is a summary of US economic activity during the past six weeks among the 12 Federal Reserve districts with data for the most recent report collected before 14 April.

Fitch’s action comes just after the ratings agency cut its GDP growth assumptions for the US by 0.4 percentage points in March and a further 0.5 percentage points more recently in a special update to its quarterly outlook.

“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,” Fitch said.

Fitch expects global automakers to increase selling prices to account for the tariffs, with some that are unable to raise prices sufficiently making “painful adjustments” to production and sales plans.

AUTO PARTS SUPPLY CHAINS
Fitch said impacts of tariffs on auto parts suppliers are less transparent because of complexities in their supply chains, including productions hits from delays.

This impact will be partially offset as tariffs are currently delayed for imports that are compliant with the US-Mexico-Canada (USMCA) free trade agreement. Fitch estimates that about 60% of auto parts are USMCA-compliant.

Tariff-related uncertainties may lead to fluctuations in production volumes, which could weigh on chemicals demand.

CHEMS USED IN AUTOS
Demand for chemicals in auto production comes from, for example, antifreeze and other fluids, catalysts, plastic dashboards and other components, rubber tires and hoses, upholstery fibers, coatings and adhesives, Swift said.

Virtually every component of a light vehicle, from the front bumper to the rear taillights, features some chemistry.

The latest data indicate that polymer use is about 423 pounds (192kg) per vehicle.

EVs and associated battery markets are an important growth opportunity for the chemical industry, with chemical producers separately developing battery materials, as well as specialty polymers and adhesives for EVs.

Visit the ICIS topic page Automotive: Impact on Chemicals

Visit the ICIS Topic Page: US tariffs, policy – impact on chemicals and energy

Thumbnail image shows autos on a lot in Colorado. Photo by David Zalubowski/AP/Shutterstock