Automaker stock prices fell on Friday after President Donald Trump announced he would slap tariffs on imports from Mexico, where auto manufacturers have plants and suppliers.
Trump announced he will impose an escalating tariff starting at 5 percent on goods imported from Mexico starting June 10 until the nation halts its citizens, along with migrants and refugees from Central America, from crossing into the United States illegally.
BMW, Daimler and Volkswagen, which have plants in Mexico to take advantage of lower labor costs and U.S. trade deals with its southern neighbor, were down by as much as 2.9% by 0800 GMT.
Shares of General Motors Co., which imports more vehicles into the U.S. than any other U.S. automaker, slid 4% at the opening bell. European and Asian automakers ship cars across the border to the massive U.S. market as well. Fiat Chrysler and Nissan Motor Co. both tumbled more than 5%
"For GM, we roughly estimate that a 5% tariff could be a several-hundred-million dollar annual earnings hit," said Itay Michaeli of Citi Investment Research.
That is rippling outward to auto suppliers as well. American Axle & Manufacturing Inc. slid nearly 4%.
Shares in Asian auto makers dropped overnight.
All of the 11 sectors in the S&P 500 were getting hit Friday, save for utilities because there is no or little cross boarder traffic in that sector, as many industries beyond automakers also manufacture in Mexico. Escalating tariffs on their goods would undoubtedly be passed along to U.S. consumers, driving up prices on a wide variety of goods such as major appliances or televisions.
Investors feared Trump's move could risk pushing the world's largest economy into a recession. It adds gloom to a market that already been roiled by his escalating trade war between the United States and China.
"Automakers may indeed see large financial impact and uncertainty from the tariffs, as all major OEMs import a considerable portion of the vehicles they sell in the U.S. from Mexico," Deutsche Bank said.
Deutsche Bank estimated that even a few months of tariffs will cost automakers — and in turn, consumers — billions, and it said that truck-crazy Americans may be dismayed to learn how many full-size pickup trucks and parts come from south of the border. It noted, for example, that 41% of GM Silverado trucks sold in the U.S. are made in Mexico.
To further use GM as an example, it built more than 800,000 vehicles in Mexico last year, exporting most of them, at 14 manufacturing facilities.
"The suddenly renewed potential for tariffs on goods from Mexico revives a risk many believed was largely behind us," Citi Research said. "This new uncertainty is a clear negative for auto stocks and we expect pressure pending further clarity as to how this will play out."
Trump said he would hit goods coming from Mexico with a 5% tariff and would hike that levy each month until it hits 25% on Oct. 1, unless Mexico takes immediate action against illegal immigration across the U.S. border.
Mexico's president said Friday he would respond with "great prudence" to Trump, and called on Mexicans to unite to deal with the challenge. Speaking at his regular news conference, President Andres Manuel Lopez Obrador said Foreign Minister Marcelo Ebrard would be in Washington over the next few days, tasked with convincing the U.S. government that Trump's measures were in neither country's interest.
A spokesman for VW subsidiary Audi said the company was watching developments very closely but it was too early to speculate on outcomes.
A note by German car analyst Arndt Ellinghorst described carmakers as exposed, noting BMW's new plant at San Luis Potosi, Mexico, represented nearly 20% of its production for North America.
An auto industry source said the situation was puzzling in that the migration issues belonged to the political stage and came despite an update to the North American Free Trade Agreement (NAFTA) in the making for this summer.
It also came as the EU and the United States are working to avoid an escalation in trade conflicts.
Commerzbank strategist Ulrich Leuchtmann said: "The U.S. trade policy has taken a qualitatively different turn. Using tariffs as a tool for non-economic goals is something which brings a new quality to proceedings."