Al Root and Anita Hamilton

President Donald Trump has good, but not great, news for car makers, and car buyers.

More tariff certainty is positive, but headwinds remain.

The president is modifying his policy on auto tariffs as part of his plan to bring domestic manufacturing back, senior Commerce Department officials said on Tuesday. Trump is expected to formally unveil the modifications in an executive order he plans to sign later this afternoon.

Importantly, the president is offering some relief to auto makers for products they finish and sell in the U.S. Domestic auto makers importing parts will get a 15% tariff offset in the first year and 10% in the second year. The math is a little complicated, but it adds up to about $2,000 a car.

Still it is a bit of relief to an industry that has pressed the administration for some leeway after 25% tariffs on imported autos kicked in earlier this month. The U.S. imports roughly 50% of new cars sold, mainly from Mexico, Japan, South Korea, and Canada. Trump's tariff could raise the price of an imported car by some $10,000 for consumers.

Investors can think of this latest development with Trump's tariff policy as avoiding some of that increased cost.

The government won't reimburse car makers directly. Instead, the offset applies to future imports based on the list price of vehicles an auto maker sells in the U.S.

The purpose of the offset is so auto makers can preserve some cash for reinvestment in the U.S. and give them time to adjust their supply chains and move more operations to the U.S. The larger goal is for a "massive resurgence in domestic manufacturing," according to a senior Commerce Department official.

The auto tariffs won't stack on top of other levies. Currently, the Trump administration has imposed multiple tariffs, including specific levies on imported cars, steel, and aluminum, duties on goods imported from China, Canada, and Mexico covered by Trump's emergency declaration related to the flow of fentanyl, and a 10% base tariff on goods imported from nearly all countries as part of Trump's so-called reciprocal tariffs. Then, beginning May 3, auto makers face a 25% tariff on imported car parts.

If all of them were stacked together, a display unit from China would face tariffs of over 170%, according to a car manufacturer. A leaf spring imported from Mexico would face a tariff of almost 80%.

Instead, Trump's levy of 25% on imported cars still remains. However, auto makers that import foreign parts don't have to apply multiple tariffs on top of each other, such as those on imported steel used to make parts.

Canadian and Mexican parts compliant with trade deals are still exempt from the parts tariffs, so overall, domestic auto makers won't face substantial parts cost inflation for the next couple of years.

Auto makers have already been maneuvering to avoid tariffs.

General Motors, for instance, is adding employees at its Fort Wayne, Ind., truck plant to boost output. That can offset some of the vehicles it imports from Mexican plants.

The new structure is an improvement, but costs and prices are still likely to go up.

Uncertainty has weigh on investor sentiment for a while. Coming into Tuesday trading, shares of GM, Ford, and Stellantis were down 12%, 5%, and 32%, respectively, since the Nov. 5 presidential election. The S&P 500 was down about 4%.

GM shares were down 0.5% in midday trading. Ford Motor stock was up 1%. Stellantis shares were up 2.9%.

Of those three, Ford imports the least to the U.S. It builds about 80% of its vehicles sold domestically in the U.S.

Tesla builds all of its cars sold domestically in the U.S. The parts offset should help it avoid almost all tariff-related cost increases. (It still faces retaliatory tariffs in China.)

Tesla stock was down 0.9% in midday trading, but coming into Tuesday trading, shares had gained almost 20% since reporting first-quarter earnings on April. 22.

Write to Al Root at allen.root@dowjones.com and Anita Hamilton at anita.hamilton@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 29, 2025 13:50 ET (17:50 GMT)

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