The automotive industry’s evolving responses to tariffs
How auto companies are adjusting to volatile US tariff policies with multipronged operational, supply-chain, and pricing strategies
Since the 25 percent tariffs on imported cars and auto parts were first announced in April 2025, 1 auto companies have been busy reevaluating their strategies and repositioning their operations to mitigate the impact of new tariff structures. Although the US subsequently has agreed to lower tariff rates with specific trading partners such as Japan, the European Union, and the United Kingdom, auto companies still face substantial challenges.2 For a second time, KPMG surveyed senior executives to gain more insights into how companies across industries, including the automotive sector, are responding to the evolving US trade policy.3
Financial and operational impacts
The costs of imports from the top three sources—Mexico, China, and Europe—rose noticeably, according to automotive executives surveyed. Compared to before the new tariff policy, costs were up between 6 percent and 15 percent for imports from Mexico, between 16 percent and 25 percent from Europe, and between 26 percent and 40 percent from China. More than half (53 percent) of respondents said between 11 percent and 25 percent of their products are affected by tariffs, with raw materials, equipment and machinery, and intermediate goods the most affected. Nearly half (47 percent) reported a decline in gross margins. Despite these impacts, 47 percent of respondents expressed a neutral view of the current trade and tariff environment, whereas 40 percent viewed it negatively or very negatively.
Risk preparedness strategies
To ensure resilience in the coming months, automotive companies are enhancing their risk management frameworks. Among executives surveyed, 73 percent reported risk reduction as their primary goal. To that end, two-thirds are conducting scenario planning, stress testing, or risk modeling. Almost three-quarters (73 percent) are using predictive analytics for demand forecasting, and 53 percent are turning to generative artificial intelligence (GenAI) for strategic scenario modeling, trade policy simulation, or tariff impact analysis. Two-thirds said GenAI will be an integral part of the success of their tariff response. In spite of the prevalent use of enhanced analytics and planning, 27 percent rated their current strategy for addressing tariff-related challenges as very effective. And more than half (53 percent) of respondents feel that their company will take 7 to 12 months to pivot if tariffs increase.
Automotive companies are enhancing their risk management frameworks, but only 27 percent rate their current strategies as effective.
Joe Lackner
Principal, Advisory, KPMG US
Mitigation strategies in practice
In the meantime, automotive executives are taking various steps to build flexibility in the face of tariff uncertainty—40 percent said they have postponed or scaled back capital investments, while 30 percent are proceeding with caution. This includes reshoring: Although half reported that they are in early stages or informal discussions for bringing operations to the United States (compared to one-third in the first survey), 88 percent feel it will take them one to two years to operationalize their plans. And reshoring brings its own set of worries: high labor costs (73 percent) and tariff impacts on imported machinery/raw materials (67 percent) are the top challenges for shifting production to the US.
Reshoring Strategies
While reshoring continues in the planning phases, automotive companies are taking action; they are focused on supply-chain reconfiguration. More than three quarters of respondents (77 percent) said they have diversified their supplier base to source from lower-tariff regions. In addition, a significant majority (60 percent) have added new tariff clauses into their supplier agreements, creating a framework for managing future changes.
Companies have also been forced to reconsider their pricing strategies, with 80 percent of respondents saying they have passed up to 50 percent of tariff costs onto their customers and consumers. Forty-seven percent indicated their objective is to achieve or exceed margin breakeven. Two-thirds are planning to increase prices by up to 5 percent in the next six months.
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Our latest survey highlights that automotive companies continue to face significant uncertainty and financial strain due to US tariff policies. Despite undertaking various mitigation efforts, challenges including rising costs, operational disruptions, limited impact of current strategies, and continued uncertainty persist for automotive executives. To navigate ongoing volatility, they will need to continually rely on advanced analytics and scenario planning to adapt with caution and care.
Footnotes
1 “Fact Sheet: President Donald J. Trump Ensures National Security and Economic Resilience Through Section 232 Actions on Processed Critical Minerals and Derivative Products,” The White House, April 15, 2025.
2 David Shepardson, “Trump approves expanding credits for US auto production, issues new 25% truck duties,” Reuters, October 17, 2025.
3 The first survey was in May 2025. In September 2025, KPMG again surveyed 300 US-based senior executives in various functions about their views on the US proposed tariffs and their effect on their company and industry. Of the total surveyed executives, 30 represented the automotive industry.
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