U.S. Imposes 25% Tariff on Car Parts, GM and Ford See Sales Surge Amid Cost Concerns

A 25% tariff on imported car parts took effect on May 3, 2025, as part of former President Trump's trade agenda, targeting components like engines and transmissions. The policy aims to boost domestic manufacturing and reduce foreign dependency. Despite increased costs, General Motors and Ford reported significant sales increases in April, driven by consumer purchases ahead of expected price hikes. The tariffs, exempting USMCA-compliant parts, could raise automaker costs by $108 billion in 2025. GM and Ford are adjusting production strategies, but analysts warn of market instability affecting long-term investments.

Tariff Details and Scope

The 25% tariff, authorized under a March 26 proclamation, applies to a wide range of imported car parts used in passenger vehicles and light trucks. These include essential components such as engines, gearboxes, and electronic systems. The policy is designed to address what the Trump administration described as a national security threat stemming from overreliance on foreign manufacturing.

According to a White House fact sheet, only 25% of the content in vehicles sold in the U.S. in 2024 was American-made, despite 8 million vehicles being assembled domestically. The U.S. also ran a $93.5 billion trade deficit in auto parts that year. The administration aims to reverse these trends by incentivizing domestic production.

However, the tariffs are not universally applied. Parts that meet the U.S.-Mexico-Canada Agreement (USMCA) requirements are exempt, preserving the integrated North American supply chain. U.S. Customs and Border Protection clarified that USMCA-compliant parts will avoid the new duties, provided they are not part of knock-down kits or bulk component packages intended for assembly.

Industry Cost Impact

The financial burden on automakers is substantial. The Center for Automotive Research estimates that the tariffs could increase costs for U.S. automakers by as much as $108 billion in 2025 alone. General Motors has already revised its financial outlook, citing up to $5 billion in new costs this year, including $2 billion in charges related to vehicles manufactured in South Korea and exported to the U.S.

GM executives now expect vehicle prices to rise by approximately 1%, reversing earlier forecasts of price declines. Ford has not released a specific cost estimate but has acknowledged the pressure the tariffs place on its pricing and supply chain strategies.

To mitigate the impact, the administration introduced an “import adjustment offset” program. This allows automakers that assemble vehicles in the U.S. to reduce their tariff obligations based on their domestic production volume. For example, manufacturers can offset 3.75% of the total Manufacturer’s Suggested Retail Price (MSRP) for vehicles assembled between April 2025 and April 2026, and 2.5% for the following year. These offsets are designed to reflect the proportion of imported parts in the final product.

Automaker Responses and Production Shifts

In response to the new trade environment, some automakers are adjusting their production strategies. General Motors announced it had expanded truck production at its Fort Wayne, Indiana, plant by approximately 50,000 units. At the same time, the company is scaling back output in Canada. Mercedes-Benz also indicated it has the flexibility to increase production at its Alabama facility.

Despite these moves, industry analysts caution that significant new investments in U.S. manufacturing are unlikely in the near term due to market instability. “If I'm going to make a multi-billion dollar decision... I wouldn't do it in a market that is this unstable,” said Art Wheaton, director of Labor Studies at Cornell University.

April Sales Surge for GM and Ford

Amid the policy shifts, U.S. automakers experienced a notable sales surge in April. General Motors reported a 20% increase in U.S. sales compared to April 2024, marking its best April for retail sales since 2007. The company attributed the spike to heightened consumer demand ahead of expected price increases.

Ford Motor Company also saw a 16% year-over-year increase in April sales, totaling 208,675 vehicles. The company’s electrified vehicle sales rose 8.4% to 28,190 units. Ford’s luxury brand, Lincoln, posted a 40% gain, led by strong sales of midsize SUVs like the Nautilus and Aviator.

Ford’s sales were bolstered by an “employee pricing” program extended to all customers, which began on April 3—the same day the initial round of auto tariffs took effect. CEO Jim Farley noted that the company had seen “double-digit sales increases since March and April,” attributing the momentum in part to consumers acting ahead of potential price hikes.

Broader Market Reactions

Other automakers also reported strong April sales. Hyundai saw a 19% increase, while Kia posted a 14% gain. Toyota reported a 10% year-over-year increase. Analysts from J.D. Power and S&P Global noted that the sales surge was largely driven by “fear-buying,” as consumers rushed to purchase vehicles before prices potentially rose due to the tariffs.

Stephanie Brinley, principal automotive analyst at S&P Global Mobility, described the tariff as a “dramatic change to the market,” even after recent policy adjustments aimed at easing the burden. She warned that while the immediate impact is being cushioned by consumer behavior, the full effects on production and pricing are likely to become more pronounced over time.

References

• Trump’s 25 Percent Auto Part Tariff Goes Into Effect
• Automakers report significant April sales increases amid tariff fear-buying
• Tariff Impact: GM Guidance Shifts As Price Hikes Hit 7 Big Brands
• Ford's April sales, led by pickups, surged 16% ahead of tariffs
• Tariffs on car parts entering the US come into force