S&P Sees High Risk of Ford, GM Ratings Downgrade on Auto Tariffs

Ford Motor Co. and General Motors Co., along with nearly a dozen auto-parts manufacturers, face the possibility of a credit downgrade if proposed tariffs by the Trump administration are implemented, according to a report released by S&P Global Ratings. The report warns that these tariffs could have a serious impact on the financial health of the automakers and their suppliers in the weeks ahead.

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Analysts, including Nishit Madlani, stated in the report that the potential tariffs would significantly affect Ford and GM’s earnings and cash flows. These financial hits likely wouldn’t be fully offset by other measures the companies could take. Currently, Ford holds a BBB- rating, which is the lowest tier of investment-grade, while GM has a slightly higher BBB rating. If conditions worsen, both could face downgrades, which would increase borrowing costs and pressure their balance sheets further.

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The S&P analysis is based on the assumption that vehicles imported from countries outside North America would be subject to a 25% tariff. Meanwhile, vehicles built within the U.S., Canada, and Mexico could face more complex tariff calculations depending on the origin of their components.

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However, analysts emphasized that their forecasts come with considerable uncertainty due to the Trump administration’s shifting stance on trade policies. The lack of consistency in tariff announcements has made it difficult for businesses and analysts to prepare effectively.

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Shortly after S&P’s report was published on Monday, President Trump said he was considering temporary exemptions on the auto tariffs. These exemptions would give automakers more time to relocate manufacturing operations to the U.S., a move intended to promote domestic job creation and reduce the country’s reliance on foreign production.

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While the focus has been on the automakers themselves, the report also addressed the implications for the broader automotive supply chain. Many auto-parts suppliers might not feel the direct sting of the tariffs because manufacturers are expected to pass most of those costs onto automakers. However, several suppliers are already operating with tight financial margins and may not have the flexibility to absorb additional financial shocks.

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Among the riskiest suppliers, S&P highlighted companies such as Cooper-Standard Holdings Inc., Burgess Point Purchaser Corp., and IXS Holdings Inc., all of which are rated as junk status. These companies have high levels of debt and generate weak cash flows, making them more vulnerable if the trade tensions escalate.

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Another concern raised in the report is the state of U.S. auto sales. S&P forecasts a 2% drop in car sales this year, bringing the total down to around 15.5 million units. This decline is partly due to expected increases in vehicle prices—between 5% and 10%—that would be passed on to consumers as a result of the tariffs. Higher prices could lead to reduced demand, placing additional pressure on manufacturers and dealers already coping with softening consumer interest and rising costs.

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Further complicating the situation is the potential for additional supply chain disruptions. China, a key global supplier of rare earth elements essential for modern vehicles, has floated the idea of restricting exports of seven such materials.

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If these restrictions are implemented, it could choke off critical supplies for the auto industry, particularly in areas like battery production and electronic components. This would not only increase production costs but also delay vehicle deliveries and further drag down sales.

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In short, S&P’s report paints a cautionary picture for the U.S. auto industry. The combination of tariffs, falling sales, supply chain uncertainty, and financial vulnerability among suppliers sets the stage for a potentially turbulent period ahead. Even with Trump’s consideration of temporary exemptions, the lack of long-term clarity keeps businesses on edge.

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The ratings agency concluded that while some companies may find ways to adjust, the industry as a whole faces meaningful risks. Without a stable policy environment or clear signals from the administration, both automakers and suppliers are likely to remain in a defensive posture—cutting costs, delaying investments, and bracing for further disruption.

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