06:56 AM EST, 02/19/2025 (MT Newswires) -- S&P Global Ratings said it believes the potential for a prolonged 25% United States tariff on imports from Mexico and Canada along with announced tariffs on steel and aluminum could have a multi-billion-dollar impact on profitability metrics.

"Such tariffs would slash billions from automakers' profits, triggering ripple effects across the broader supply chain due to potential production disruption and driving up costs for the end consumer," said credit analysts David Binns and Nishit Madlani.

In addition, all else equal, the proposed tariffs on steel and aluminum would also increase costs for the auto industry as it comprised 15% of net shipments of iron and steel in 2024. History suggests that the costs of tariffs have largely been borne by U.S. consumers, noted S&P Global.

In past instances of new tariffs, almost all of the additional cost was passed through in the first year. S&P Global believes most company ratings would be unaffected if the tariffs were short-lived, but it expects the uncertainty around U.S. tariff policy to be ongoing.

S&P Global estimates most tier 1 suppliers would pass a substantial burden of the higher costs on to automakers, which would eventually have to pass it on to consumers through higher prices.

Higher risk for credit metrics for suppliers stems from longer-term secondary effects. These include lower volumes due to higher prices, higher working capital, renewed supply chain shortages, increased production volatility, and the potential for elevated capital spending to relocate production longer term. These risks would be "material" if the tariffs become effective beyond three to six months or worse, extend through 2026, it added.

Aftermarket suppliers have greater pricing power and less production in Mexico, but tariffs on China could hurt some aftermarket suppliers. Dealers would experience fewer impacts overall and have a greater cushion on their credit metrics, stated S&P Global.