Honda employees work along the vehicle assembly line in Alliston, Ont. (Credit: Nathan Denette/The Canadian Press files)
Less than two weeks after the United States applied tariffs on Canadian automobiles, only two of the five automakers here are producing vehicles at full capacity.
Both Honda Motor Co. Ltd. — which on Tuesday was forced to deny reports it was planning to relocate production to the U.S. — and Toyota Motor Corp. have been operating as usual since 25 per cent tariffs on Canadian-made vehicles went into effect on April 3.
The other three automakers — Stellantis NV, General Motors Co. and Ford Motor Co. — have either paused production to study tariffs or, because of other problems, stopped production while an existing plant is retrofitted.
In one case, Stellantis, the parent company of Chrysler, Fiat and other brands, has paused its retrofit of an assembly plant in Brampton, Ont., while it reconsiders its strategy.
The confusion around which of Trump’s policies will stick — including the ultimate size, scope and target of his tariffs and whether they will apply to auto parts — is creating uncertainty about the auto marketplace and the broader health of the economy.
That’s making it difficult for automakers to match their production to anticipated market demand in the U.S., which trade groups say absorbs an estimated 85 per cent of Canadian-made vehicles.
“There’s just mass uncertainty about how this is going to play out,” Brian Kingston, president of the Canadian Vehicle Manufacturers’ Association, an industry lobby group, said.
So much so that Finance Minister François-Philippe Champagne on Tuesday announced a “remission framework for automakers, designed to incentivize continued production and investment in Canada.”
Canada had previously retaliated against the U.S. tariffs on April 9 by imposing counter tariffs of 25 per cent on U.S.-made vehicles that do not comply with the Canada-United States-Mexico Agreement (CUSMA).
Champagne said companies that manufacture vehicles in Canada would be allowed to import a certain number of vehicles that are exempt from Canadian tariffs.
The U.S. began applying 25 per cent tariffs on all vehicle imports on April 3, but the rate for Canadian vehicles can be reduced based on the percentage of U.S. parts contained within.
Kingston said just about every vehicle produced in Canada contains an estimated 50 per cent U.S. content, meaning the tariff rate should be reduced by half to 12.5 per cent. In practice, however, automakers have to apply to the U.S. Commerce Secretary for the relief rate.
As of last week, they were still scrambling to figure out what information to include in their applications. Determining what constitutes “U.S. content” can be difficult given that a single auto part can contain metal that is mined in one country and processed in another country, even if the end part itself is fabricated in the U.S.
“This is very complicated. When countries negotiate free trade agreements, that’s what gets determined and it can take years. Deep experts spend hours, days, months, sometimes years at negotiating tables writing product-specific rules of origin on every good that crosses the border,” Kingston said. “Trying to put that process into a 30-day window is impossible.”
Other U.S. trade actions are also causing headaches for the auto sector. In March, the U.S. applied 25 per cent tariffs on steel and aluminum, both of which are used in auto manufacturing, and Canada has implemented retaliatory tariffs on U.S.-made autos.
There’s also the trade war between the U.S. and China, in which the U.S. has put 145 per cent tariffs on Chinese goods, and China has retaliated by hiking its tariffs to 125 per cent on U.S. goods and restricting exports on products such as rare earths and permanent magnets, which are used in vehicles.
On April 2, Stellantis announced it would pause operations at its Windsor, Ont., assembly plant so it could study the impact of tariffs for two weeks.
In late February, the company paused construction in Brampton, where it was retooling its assembly plant so that it could produce either EVs, hybrids or internal combustion engine vehicles.
The plant had been closed since December 2023 for an estimated two-year, $1.3-billion retooling. Now, the 3,000 people who worked inside the plant, plus hundreds of others who work at parts’ suppliers that feed the plant, face an uncertain future.
Stellantis has said it plans to restart operations in Windsor on April 21, but has not said anything new about its Brampton retooling.
The auto giant has been having a hard time overall. On an earnings call in February, executive chair John Elkann said he was “not proud” of the company’s 2024 performance, while chief financial officer Doug Ostermann said the company has struggled with excess inventory in the U.S. and had to “dial up” incentives to sell cars, which reduced margins.
The uncertain pace of electric vehicle adoption is also causing problems for some auto manufacturers.
Ford, in July 2024, scrapped plans to retool its assembly plant in Oakville, Ont., to build EVs and instead said it would produce large pickup trucks there.
This week, General Motors Canada said it was temporarily pausing production of its electric cube van, known as the BrightDrop, that it had been producing in Ingersoll, Ont., saying the decision was a direct response to market conditions and it needed to rebalance inventory.
The closure is expected to last until the fall, by which time the company is hoping to sell down its inventory in the U.S., according to one insider, who spoke on background.
But Honda and Toyota, which together account for more than half of Canada’s auto production, have said they will continue manufacturing at full capacity.
There were rumours on Tuesday that Honda is working on plans to relocate the production of some models from Mexico and Canada to the U.S., but the company said it has no plans to change its Canadian operations or to scale back its planned $15-billion investment in an electric vehicle and battery manufacturing complex in Ontario.
“We constantly study options for future contingency planning and utilize short-term production (to) shift strategies when required, to mitigate negative impacts on our business,” spokesperson Ken Chiu said in a statement.
Toyota also said it has no plans to change anything at the moment.
“While this is still a highly fluid situation,” spokesperson Michael Bouliane said, “we have no plans to change our production within the foreseeable future. Our vehicles are in high demand, and we will continue to build to plan.”
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