Who Pays For Tariffs? Jeep's Answer

It's been the burning question since President Donald Trump stepped out in the White House Rose Garden and announced that he was ordering tariffs on virtually all countries, worldwide. Everyone wanted to know "who would pay for these tariffs?"

After all, for a country like the United States, which buys more overseas goods than any other country, the question of who would pay for the tariffs would significantly impact whoever that might be.

Different economic and financial theories were proposed, some claiming that it would be the producers themselves who would bear the cost of any tariffs. Others argued that it would be the importer who would pay for tariffs at the shipping dock. At the same time, others indicated that it would be the retail outlet that would bear the cost hike.

But you and I knew that if we just waited long enough, corporate financial reports would provide the answers. And the first to provide some insight is the manufacturer of Jeeps, as well as other Chrysler-produced vehicles, Stellantis.

For those not familiar with the recent corporate history of Chrysler, one of the "Big Three" American Auto Markers, Stellantis took over Chrysler about 15 years ago. The time was the middle of the Great Financial Crisis of 2008, and Chrysler declared Chapter 11 Bankruptcy. The manufacturer of the legendary Jeep needed financial help to continue operations. In stepped the Italian Car Maker, Fiat, with an initial cash infusion. Over the next several years, Fiat continued to support Chrysler financially, gradually acquiring the shares of other shareholders. Four years ago, a corporate reorganization led to the introduction of the new corporate name, Stellantis.

So, here we have the perfect test of President Trump's new tariffs: a multinational corporation with a US Subsidiary headquartered in Italy. If any company was going to be impacted by tariffs, Stellantis is the one.

The problem is that Stellantis has several issues that are impacting current results, issues that I've omitted from our story. Problems like diesel engines that didn't live up to marketing claims, internet portals with security issues, and, like all US Auto makers, meeting sales projections are currently a real challenge.

To keep investors informed, Stellantis management held a preliminary investor call yesterday. Hat tip to Stellantis' Finance Team. I've rarely seen this kind of proactive management, and it deserves a "shout out."

The Stellantis CFO is Douglas Ostermann, and in his carefully worded response to investor questions, it becomes clear just how challenging the current situation is for any company that must deal with these new American Tariffs.

First comes a question of specifics, as Ostermann puts it:

"And frankly, the tariff front seems to evolve on a daily and weekly basis, right, because the administration is still very much engaged with many countries around the world in negotiating deals. And so we'll have to see how that evolves."

https://ch.zonebourse.com/cours/action/STELLANTIS-N-V-117814143/actualite/Transcript-Stellantis-N-V-H1-2025-Earnings-Call-Jul-21-2025-50564406/

Companies around the globe must make decisions currently based on their assessment of the level of tariffs the Trump Administration will impose on their country—a difficult task at best.

However, Ostermann projects that the annual America Tariff charge for Stellantis will likely be in the 1 to 1.5 billion Euro level. (Stellantis incurred a 330 billion Euro charge from April 2, 2025, until June 30, 2025.)

Finally, we come to the pricing issue. Where will the tariff burden fall? Ostermann has been grappling with this issue for a while, and his answers reflect considerable forethought. First, he notes that US inventory generally has a 60-90 day wait before being sold. It gives Stellantis some time before any actual charge is levied on a particular car or truck. This rolling inventory replenishment provides management with the breathing room they need.

Second, he notes that most of the major OEMs (original equipment manufacturers are facing the same issues. Here, he's implying that Stellantis will base its actions on those of its competitors to determine any sales or incentives. Stellantis may attempt to offset the impact of the pricing tariffs. However, Stellantis' current earnings are poor, indicating that this would be very difficult in this environment.

Finally, Ostermann makes the observation: "...tariffs are, we all know, inherently inflationary."

And that's the bottom line. Tariffs are, indeed, inflationary – as we all know, inflationary means a hike in prices. Not some prices, not selective prices, but all prices. And like any other type of inflation, tariff inflation will be borne ultimately by us all—the manufacturer, the sales team, and finally the buyer. As much as the maker, shipper, or sales department may want to offset the tariff increase, and may even do so for a while, in the final analysis, higher prices will be passed along to the consumer.

You may hear the First Half 2025 Stellantis Conference Call at 2 PM CEST here:

https://www.stellantis.com/en/investors/events-and-presentations