What began as a promising year for the North American auto industry is now being overshadowed by aggressive U.S. trade policies, with new tariffs expected to drag down vehicle sales and disrupt production across the continent.
According to TD Economics’ North American Auto Outlook 2025, the U.S. administration’s sweeping 25 per cent tariffs on imported vehicles and parts are already reshaping the automotive landscape. While partial exemptions have been granted to Canada, Mexico, and the U.K., the broader impact is expected to be significant — especially if the tariffs remain in place through the end of the year.
TD forecasts a 4.0 per cent decline in U.S. vehicle sales and a sharper 7.5 per cent drop in Canada on a fourth-quarter-over-fourth-quarter basis. The report warns that rising vehicle prices, slower economic growth, and reduced affordability will weigh heavily on consumer demand.
The U.S. tariffs, introduced in April and May, apply to both vehicles and parts, with exemptions for USMCA-compliant content. Canada responded with its own 25 per cent tariffs on U.S. vehicles, though it has introduced a quota-based offset for automakers that produce domestically — a move that could soften the blow for companies like Toyota, Honda, and the Detroit Three, the report noted.
Still, the uncertainty surrounding trade policy is expected to stall investment and production decisions. Automakers are hesitant to commit to new U.S. facilities, especially with the 2028 election cycle looming and the possibility of policy reversals.
While a full reshoring of auto production to the U.S. is unlikely due to cost and complexity, TD said it expects a moderate shift in output toward underutilized U.S. capacity. Canada and Mexico, which export the majority of their vehicle production to the U.S., are likely to see declines unless they can pivot to other markets or boost domestic demand.
An example of this shift is General Motors’ recent decision to cut a shift at its Oshawa, Ontario, plant while increasing output at its Fort Wayne, Indiana, facility — a sign of how production strategies are already adapting.
Sales outlook
The report noted that 2025 was poised to be the first “normal” year for auto sales since 2019, following years of pandemic-related disruptions and high inflation. But the new trade environment has changed that outlook.
In the U.S., vehicle prices are expected to rise by thousands of dollars due to tariffs, while broader economic impacts from trade policy could slow GDP growth to 1.5 per cent — half the pace of 2024. In Canada, where the economy is more reliant on U.S. trade, growth is expected to fall below 1 per cent.
TD also observed that early-year sales were likely frontloaded as consumers rushed to buy before tariffs took full effect. A slowdown is expected in the second half of the year as higher prices filter through the market.
The report noted that economic uncertainty has returned to levels not seen since the pandemic, driven by volatile U.S. trade policy. If current tariffs remain in place, TD expects a contraction in vehicle sales and a gradual reorientation of production toward the U.S. — a shift that could reshape the North American auto industry for years to come.
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