Fitch Ratings has revised its 2025 outlook for the global automotive sector to deteriorating from neutral, citing the financial and operational pressures triggered by the 25% import tariffs imposed by the US on 26 March.
The tariff applies to all imported vehicles and select auto parts, affecting exports from Mexico, Canada, Japan, Korea and Germany.
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Fitch stated that the tariff would likely lead to production cuts and increased input costs, potentially pushing profitability and free cash flow margins below thresholds considered acceptable under current credit ratings. While balance sheets remain robust, particularly among investment-grade automakers, those with already stretched credit profiles now face heightened rating pressures due to restructuring costs, declining output, and weakening demand in China.
Market deterioration
The global automotive sector is also seeing reduced resilience in its core US and Chinese markets. According to Fitch, weakening consumer demand, driven by price uncertainty and tariff-related risks, has undercut the momentum that previously supported a stable industry outlook. The agency has revised down its US GDP growth assumption by a cumulative 0.9 percentage points and cut its 2025 US light vehicle sales forecast to 15.2 million from 16.3 million. European sales projections have also been lowered to 12.5 million units from 13 million.
Global price adjustments expected
In response, automakers are expected to raise prices globally to offset higher costs. However, Fitch notes that not all companies will be able to fully pass on the tariffs to consumers. Many will be forced to adjust production and sales strategies, which may not be sufficient to mitigate cost pressures, resulting in margin compression and reduced free cash flow.
Impact on auto suppliers
The implications for parts suppliers are more complex. Although 60% of parts are USMCA-compliant (United States-Mexico-Canada Agreement) and thus temporarily shielded by a delay in tariff enforcement, the remaining are exposed to cost hikes and supply chain disruptions. Fitch warns that fluctuations in production could adversely affect suppliers closely tied to OEM production volumes.
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