*

Automakers look for a lifeline to avoid massive tax on

vehicles

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Tariffs could add on average $3,000 to the cost of a

vehicle

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Pickup drivers are twice as likely to say they are

Republicans

than Democrats

(Updates to change headline)

By Nora Eckert, Kalea Hall and David Shepardson

DETROIT, March 5 (Reuters) - U.S. President Donald

Trump's 25% tariffs on Canada and Mexico have sent the U.S. auto

industry scrambling to plan for the massive tax on some of

America's best-selling vehicles, including full-sized pickup

trucks, while pinning their hopes on a potential deal in

Washington.

Hours after the tariffs went into effect, the White House threw

the industry a lifeline, saying many North American-built

vehicles would be exempt if they already followed complex rules

of the 2020 U.S.-Mexico-Canada Agreement's rules of origin,

enacted during Trump's first term.

"We are going to give a one-month exemption on any autos

coming through USMCA... so they are not at a disadvantage,"

White House press secretary Karoline Leavitt told reporters

Wednesday. "Reciprocal tariffs will still go into effect on

April 2."

Trump raised the idea of a 30-day pause on USMCA-compliant

vehicles in return for expanding production in the U.S. during a

call on Tuesday with GM CEO Mary Barra, Ford CEO Jim Farley,

Ford executive chair Bill Ford Jr. and Stellantis chairman John

Elkann, Reuters reported earlier.

Automakers have expressed support for boosting U.S.

investment but want certainty over tariff policies as well as

vehicle emissions rules before making dramatic changes, two auto

sources said.

Ford, GM and Stellantis declined to comment on the meeting.

Such a deal could be an especially welcome development for

pickup-truck makers - and for their leading customers, who lean

heavily towards Trump's rural base of Republican voters.

About a third of U.S. pickups sold by American and foreign

brands are manufactured in Mexico and Canada, according to

research from Global Data.

The quintessentially American product is the backbone of the

U.S. car industry, providing large portions of the sales and

profits for General Motors, Ford and Stellantis, owner of the

Jeep and Ram truck brands. Automakers, including U.S. and

foreign brands, sold nearly 3 million U.S. pickups last year,

about 20% of overall national sales.

And pickup drivers are about twice as likely to say they are

Republicans than Democrats, according to an August survey by

Edmunds, an industry information provider.

The tariff pause gives the industry additional breathing room to

hold consumer prices steady because of existing inventory on

dealer lots. Ohio dealer Rhett Ricart, who sells GM and Ford

vehicles among other brands, held out hope for a quick deal to

avert a crisis.

"I think it won't take a month for them to figure out how to

handle this thing," he said, speaking before Wednesday's

announcement. "I'll be more concerned ... 30 days from now."

'NO CHOICE' BUT TO PASS ON COST

Trump's tariff threats has automakers and suppliers gaming

out how they might avoid or absorb such taxes - and how much

they might have to raise consumer prices. The answers to such

vexing questions could vary widely by automaker, depending on

their and their suppliers' exposure to Canada and Mexico

manufacturing.

Analysts at Wolfe Research projected the tariffs would add about

$3,000 on average to the cost of a vehicle, and around $7,000 on

models imported from Canada or Mexico. Full-size pickups have an

average transaction price of about $65,000, according to January

data from Cox Automotive.

"Once the manufacturer starts passing on that cost to us,

we're going to have no choice but to pass it on" to consumers,

said Jeff Tamaroff, Chairman Of Tamaroff Auto Group, which owns

Honda and Nissan dealerships in Michigan.

Those extra costs would come in addition to already-soaring

vehicle prices, which started to rise sharply during the

coronavirus pandemic and haven't eased much since. The average

vehicle sales price hit $48,641 in January, according to Cox

Automotive data.

Among Detroit brands, GM's Chevrolet and GMC pickups, along

with Stellantis's Ram, are more exposed to Trump's taxes than

Ford because both build large numbers of pickups in Mexico.

Ford builds its F-series pickups in the United States - but

also makes some truck engines in Canada, underscoring the web of

economic interdependence among the three North America trading

partners.

Almost no American vehicle is made from solely American

parts, industry research shows.

Barclays bank analysts estimate that Mexico provides up to

40% of the parts in U.S. vehicles and Canada more than 20%.

Suppliers say they will have to cover some of the tariff costs

and will likely see an additional hit if consumer demand weakens

from rising vehicle prices.

Automakers and suppliers also worry about the effects of

tariffs on vehicle components that bounce across borders before

reaching their final destination. Companies worry that such

parts could be taxed with every border crossing, although Trump

has not clarified his policy in such cases.

Take truck transmissions made by German supplier ZF

Friedrichshafen. The transmissions, which are used in the Ram

and other vehicles, include parts that cross borders several

times before they reach their final destination.

'HOWEVER BAD IT LOOKS, IT'S WORSE'

The journey begins at a factory in Mexico, which produces

torque converters, a donut-shaped part that transfers power from

the engine to the transmission. The torque converters are then

shipped to a ZF facility in South Carolina that assembles the

transmission. The finished transmission, including the torque

converter, is then sent back to Mexico for installation into a

Ram pickup - which then crosses the border again to reach a U.S.

dealer.

About 30 other car and truck components follow a similar

zigzagging path across the U.S.-Mexico border, ZF said.

"A tariff over Mexico, in this particular case, or over

Canada, is going to mean hundreds of millions of dollars as an

impact" on the industry overall, said ZF North America President

Ramiro Gutierrez.

Without major production shifts, the ripple effect across

thousands of individual auto parts could potentially reach $40

billion by the end of 2025, according to Bernstein analysts.

"However bad it looks, it's worse," said Pat D'Eramo, the

chief executive of Martinrea, a Canadian company that makes

brake lines and other products. The company has manufacturing

operations in all three North American countries with some

products crossing borders multiple times.

The American auto industry, which for decades has enjoyed

free trade across the U.S., Canada and Mexico, is now

contemplating how to adjust supply chains if the trade war

continues, a potentially expensive prospect.

U.S. automakers and their suppliers have invested billions

to expand their U.S. footprint and avoid tariffs since the Trump

administration enacted USMCA in 2020 to replace the 1994 North

American Free Trade Agreement.

Now, some industry executives say they're being punished for

complying with Trump's signature trade deal.

"This is a bonanza for our import competitors," Ford CEO Jim

Farley told analysts last month of Trump's new tariff threats,

pointing out that some rivals import from Asian countries with

few duties.