Automotive sector grapples with tariff challenges
Auto companies are ramping up data and analytics, shifting costs, and exploring reshoring in response to tariff threats
The automotive industry is shifting into high gear to respond to sweeping tariff proposals announced in April 2025, which are poised to disrupt supply chains and drive up manufacturing costs1. Now taking effect, these tariffs will impact imported vehicles as well as key components such as engines, transmissions, powertrains, and electrical and computer parts.
KPMG LLP surveyed C-suite executives in May 2025 to explore how companies across industries including the automotive sector are responding to tariff volatility.2
Financial and operational impacts
Manufacturing and in-house production felt the sharpest impact: 24 percent of auto respondents reported tariffs had disrupted operations, the highest of any industry. In the meantime, sales impact has been mixed. Forty-four percent of automotive executives reported a decline in product and service sales—broadly in line with the 45 percent average across other industries. At the same time, 52 percent of auto execs reported a 6 percent to 15 percent decrease in sales within foreign markets—a decline that underscores the growing challenge of staying globally competitive.
Risk preparedness strategies
The automotive industry is deploying a number of strategies to help prevent and manage potential tariff risks and uncertainties. For example, 70 percent of industry respondents said they have prioritized enhancing data collection on third parties, while another 67 percent are assessing high-risk business relationships.
Two other widely considered risk preparedness tactics are diversifying export markets and lobbying for government support, both being explored by 62 percent of auto execs surveyed. The lobbying effort, in particular, makes sense in that 89 percent of auto execs stated that regulatory and compliance hurdles are a significant challenge to the industry; that’s notably higher than the 55 percent average reported by respondents in other sectors.
Almost 90 percent of auto executives reported that regulatory and compliance hurdles in connection with tariffs are proving to be a significant challenge.
Joe Lackner
Principal, Advisory, KPMG US
In addition, fully 70 percent of auto executives who rely heavily on single-country sources for many of their components are looking to diversify suppliers to manage risks associated with potential foreign tariff increases or changes in geopolitical relations.
Mitigation strategies in practice
To counteract the ripple effects of tariffs, the automotive sector has embraced a number of mitigation approaches. For example, 41 percent of companies have postponed or scaled back investments (although 22 percent are accelerating investments, illustrating that some players are seizing potential growth opportunities even in uncertain times).
Another maneuver under consideration by one-third of auto executives (more than any other sector) is bringing auto manufacturing operations back to the United States—possibly within six to 12 months. One potential obstacle to this reshoring strategy is higher labor costs, according to 70 percent of respondents.
Finally, in line with the overall trend, 81 percent of auto companies are shifting tariff costs to customers, passing on one percent to 50 percent of the costs. And 74 percent are working to make their operations more efficient, in line with what other industries are doing, according to the survey.
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Despite substantial financial and operational hurdles stemming from tariff uncertainty, auto companies have taken an active approach to risk preparedness and mitigation. By passing on costs to customers, diversifying supply chains, looking into US relocation, and enhancing data collection and operational efficiency, auto companies are seeking to sustain competitiveness in a turbulentenvironment.
Footnotes
2 In May 2025, KPMG surveyed 300 US-based C-suite executives in various functions about their views on the US proposed tariffs and their effect on their company and industry. Of the total surveyed, approximately 30
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