North American trade rules and the next round of negative equity

When the next round of North American trade rules begins, each of the three Detroit automakers stands to absorb at least $2 billion more a year in compliance costs, and that will negatively impact American car buyers.

Every dollar a new trade rule adds to the cost of building a car in North America has to settle somewhere, and it usually settles on the number a buyer finances. General Motors already carries an estimated $2.5 to $3.5 billion in annual tariff costs, close to a fifth of its operating profit, and Ford is near $1 billion. A proposed requirement that vehicles contain 50% U.S.-made content to qualify for lower tariffs would add at least $2 billion a year to each of the three automakers the American Automotive Policy Council represents.

Reuters and the Associated Press reported this week that a fourth round of U.S.-Mexico talks is set for September while new Canadian tariffs take effect within days, so the companies are negotiating against a clock they do not control. Automakers can absorb part of the increase and dealers can discount against it, but a large share arrives as a higher figure on the window sticker, and the person in the showroom finances that figure over 72 or 84 months.

At the end, the buyer pays the price.

That buyer is carrying negative equity into the deal, and with more than 3 in 10 new-vehicle trade-ins coming in underwater by an average of $7,183, the exposure sits with the lender writing the loan, the dealer structuring the deal, and the OEM funding the incentive as much as it does with the consumer.

Buyers financing today's tariff-inflated prices become the underwater trade-ins of 2029, since a loan written at an elevated transaction price keeps depreciating against a used market that resets once the tariffs come off, so whatever gets settled in Washington this year reaches the lot as negative equity 3 or 4 model years later.