A one-month reprieve from tariffs is no magic fix for the North American auto industry, Bank of America warns

The delay of tariffs on US imports of Canadian and Mexican autos and parts produced a significant relief rally in the likes of General Motors, Ford, and Stellantis on Wednesday.

“The market has cheered the news, but it may be too early to claim victory as the ‘new’ deadline of April 2 still looms large and in auto terms is just around the corner,” Bank of America analysts led by John Murphy warned in a note on Thursday.

Indeed, those stocks are sinking today even as US President Donald Trump postponed the imposition of levies on most imports from Mexico, also until April 2.

The analysts continue (emphasis added):

“For the first time there was some indication by the Administration of what they are specifically trying to achieve in the auto industry — the reshoring of auto production and jobs in the US. Admittedly, there is some potential for complete vehicle assembly, but building out capacity and staffing a plant would take 3+ years. However, for most auto parts it is not viable as it would be even more expensive to produce in the US than paying the 25% tariff.”

One theory has been that auto tariffs are too disruptive to the industry to ever be enacted. Carmakers have little ability or reason to make progress on the administration’s professed goals, per BofA, as impending tariffs serve as a monthly sword of Damocles perched above their profitability. If a tail scenario is going to be highly visible very frequently, traders are likely to ascribe higher odds to such an outcome eventually being realized.

“However, we continue to expect that rational economic arguments that protect and maximize US workers and companies will prevail,” BofA concluded on a more cheery note. “Ultimately, this would mean not too much disruption to the status quo, but the process to get there could be volatile.”