Editor’s note: This story was originally published on Feb. 27, before U.S. President Donald Trump officially slapped 25% tariffs on Canadian-made goods being sold in America.
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Ontario automotive assembly plants could shut down within a week of being hit with a U.S. tariff on their vehicles, some industry observers say.
Car dealers in the U.S. have seen inventory on their lots steadily growing for more than a year. There are now about three million unsold vehicles, and a 25 per-cent-price increase from tariffs U.S. President Donald Trump may impose as soon as next week could freeze more vehicle sales, said industry analyst Joe McCabe, chief executive AutoForecast Solutions.
“If you’re hit by tariffs, a shutdown within one week sounds aggressive but it’s the reality,” McCabe said.
New vehicle inventory in the U.S. fell in January to 2.9 million vehicles, down from 3.1 million vehicles the previous month, the Automotive News reported, citing Cox Automotive data. About one year earlier, inventory was about two million vehicles.
After a strong ending to 2024, vehicle sales in the U.S. slumped in January by 7.5 per cent, TD Economics reported.
“The decision-making process will be: ‘What do we do?’” McCabe said of automakers’ reaction. “Do we go from three shifts to two, two shifts to one or shut the plant down so we can play catch up” with inventory?
If sales slow, vehicles stay on the lot and automakers don’t make money.
Ontario is a major producer in North America’s auto industry, with auto assembly plants located in eight centres from Windsor to Oshawa, and parts makers operating all along the Hwy. 401 corridor.
About 125,000 people are directly employed in the industry in Canada, with nearly three times that many working in spin-off jobs. Ontario accounts for the lion’s share of that employment, and automakers are additionally spending billions of dollars in the province to build out the supply chain for a new generation of electric vehicles, including auto giant Volkswagen at a $7-billion electric vehicle battery plant it’s building in St. Thomas.
Besides the fallout on new vehicle sales, tariffs could slow the shipment of parts that would also be hit by tariff price increases. And in an industry that relies on just-in-time delivery of components, as the auto industry does, that’s crucial.
“It’s very important when you build a vehicle, it’s down to the hour when parts show up at a facility. If the border is subject to a massive tariff, it may not be possible to build the product at the time,” McCabe said.
Trump has threatened a 25-per-cent tariff on Canadian-made goods sold in the U.S. On Thursday, he said they would come into effect on March 4, this coming Tuesday, though there has been some confusion over whether they would immediately hit all goods, including vehicles.
Canadian vehicle exports were valued at $51 billion in 2023, with 93 per cent shipped to the U.S., the Canadian Vehicle Manufacturers Association reports.
In London alone, home to a large auto parts sector, more than 700 businesses of all types exported $7.8 billion in goods across all sectors to the U.S.
Officials with Honda Canada, which builds vehicles in Ontario in Alliston, said in an email message they will watch the tariff matter closely but wouldn’t say what immediate action they would take.
“We continue to monitor the fluid situation as we approach possible tariffs. We will take no immediate actions related to either our current manufacturing operations or electrification plans until we have a full understanding of the impact of tariffs on our business,” Ken Chiu, a company spokesperson, wrote by email.
Honda employs more than 4,000 in Canada and has proposed an ambitious $15-billion electric vehicle investment strategy for Ontario. Honda builds the Civic sedan and CR-V, both the petrol and hybrid versions, in Canada. It assembles about 420,000 vehicles a year and sells about 78 per cent into the U.S.
Toyota Motor Manufacturing, with plants in Woodstock and Cambridge that employ more than 9,000, assembles RAV4s and Lexus vehicles in Ontario. The company will wait until the tariff announcement before deciding on a course of action, said Toyota spokesperson Michael Bouliane.
“At this point, no formal tariff policy has been formally announced, so we’re not going to speculate. If we do see new tariff policy, we’ll need to take some time to properly review it and assess any potential impact on our industry and consumers before we’re able to respond,” he said in an email statement.
Other Ontario automakers – General Motors, Ford and Stellantis – could not be reached for comment.
At GM’s Cami assembly plant in Ingersoll, which makes two models of an electric cargo delivery van, Unifor Local 88 chairperson Mike Van Boekel said he wouldn’t be surprised to see a sudden closing as a result of tariffs.
“I don’t know what will happen, but it’s worrying the industry,” he said. “It will be business as usual until they tell us otherwise, but if they add 25 per cent it will impact sales. Most people think the whole industry could shut down in a week.”
If Canada imposes counter-tariffs on U.S.-made vehicles imported into Canada, as the federal government has threatened, it also will close plants in the U.S., said McCabe, the industry analyst, who is based in America.
“Canada is an important market for North American manufacturers. The impact will be faster on Canadian plants, but tariffs don’t discriminate,” McCabe said.
A tariff war, even if it’s brief, will mean billions of dollars in lost production and costs to the automakers, McCabe said.
A strike in 2023 by the United Auto Workers in the U.S. against the Detroit Three automakers lasted six weeks, resulted in 2.4 million fewer vehicles assembled and cost automakers $3.6 billion.
“The tariff will impact every vehicle manufacturer. It could escalate very fast and it will accelerate,” McCabe said. “The Trump administration is all about keeping people on their heels. The first tariff pass was about border issues from the U.S. perspective. The response was quick.
“But most of what Trump does is about negotiating. They want something out of it (the tariff threat).”
That could mean a revamped free-trade agreement, the United States Mexico Canada Agreement, which went into effect in 2020 and expires in 2026.
“They will take it to the 11th hour and see what they can get out of it. I think we will see a tariff hit and then it’s a matter of who blinks first,” McCabe said.