• Farley argues that tariffs would benefit foreign competitors and disrupt the industry's transition to electric vehicles.
• Farley expresses concern over the potential repeal of parts of the Inflation Reduction Act, which could impact Ford's investments in electric vehicle production.

Ford CEO Jim Farley, on the eve of traveling to Washington, D.C., to meet with members of Congress on President Donald Trump's proposed tariffs did not mince words Tuesday during an investor conference.

While Trump has talked about strengthening the U.S. auto industry, which would be a signature accomplishment, "So far what we're seeing is a lot of cost and a lot of chaos," Farley said.

"Let's be real honest: Long term, a 25% tariff across the Mexico and Canada borders would blow a hole in the U.S. industry that we've never seen," Farley said. "Frankly, it gives free reign to South Korean, Japanese and European companies that are bringing 1.5 million to 2 million vehicles into the U.S. that wouldn't be subject to those Mexican and Canadian tariffs. It would be one of the biggest windfalls for those companies ever."

Wednesday's trip to Washington will be the second time Farley has gone there in three weeks, he said, to address the impact of proposed tariffs on the auto industry.

Farley made the comments Tuesday at the Wolfe Research Auto, Auto Tech and Semiconductor Conference held in New York.

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Auto industry in 'global street fight'

Trump could announce reciprocal tariffs on major trading partners as soon as Tuesday. He put 25% tariffs — the taxes charged on goods as they cross country borders — on steel and aluminum imports Monday. Trump said he plans reciprocal tariffs on every country that would go into effect almost immediately after he announces them.

Farley said there's a "global street fight" in the auto industry with the transition to electric vehicles and the rapid growth of Chinese automakers across various markets, indicating now is not the time for disruption.

"President Trump has talked a lot about making our U.S. auto industry stronger, bringing more production here, more innovation to the U.S. and if his administration can achieve that ... it would be one of the most signature accomplishments," Farley said. But so far, it's disconcerting.

Ford is compliant with the terms in the United States-Mexico-Canada Agreement on trade across its finished vehicles and components that cross the borders between the three countries, Farley said. A 25% tariffs "would be devastating," he said.

Ford and GM preparaing

Analysts said Ford has a $35 billion exposure between finished vehicles and parts that move from Mexico and Canada into the United States. Ford Chief Financial Officer Sherry House, who also spoke at the Wolfe conference, said the automaker is preparing for potentially higher tariffs by setting up teams throughout the company to study "material flows" as well at Ford's levels of inventory.

"Right now, we're paused on a lot of the Mexico and Canada tariffs," House said.

But she said Ford is considering where to strategically invest resources and make a small amount of inventory built in key areas "to protect our flow and to protect our customers. But generally speaking, we're not making a lot of large decisions at this point. We're waiting to see the impact of what's going to happen."

General Motors CEO Mary Barra, who also spoke at the conference, said GM has been doing planning to mitigate the tariffs since late November.

"We started doing scenario planning and looking at what are the different things we can change, we can move," Barra said. "We are prepared when we know exactly what’s going to happen, we know the steps we can take and we think we can mitigate 30 to 50% of tariffs without deploying capital. If tariffs are longer, there’s additional things that we’ve studied that we know we can do from a capital efficient way."

Farley sees jobs at risk

Beyond tariffs, Farley said the potential remains for Trump to repeal parts of the Inflation Reduction Act, such as the $7,500 tax credit for buyers of electric vehicles. That has helped many automakers sell EVs.

The act also includes the production tax credit, which allows a business to reduce taxes based on the amount of electricity it generates by solar and other qualifying technologies for the first 10 years of a system's operation. Ford is building factories to take advantage of the production tax credit, so a repeal of that would be costly to Ford.

"We’ve already sunk capital — even though we’ve rationalized it — into battery production and assembly plants all through Ohio, Michigan, Kentucky and Tennessee," Farley said. "Many of those jobs would be at risk if big parts of the IRA are repealed.”

'This is what we're dealing with'

As for the 25% tariff on imported steel and aluminum, House said Ford gets 90% of its steel from United States and 10% from Canada. She said aluminum also is mostly sourced domestically.

But a frustrated Farley added that Ford’s suppliers have international sources for aluminum and steel so “the price will come through.”

That could mean consumers will be paying more for new cars. According to Kevin Roberts, Director of Economic and Market Intelligence at car shopping website CarGurus, because the auto production supply chain is so interconnected, tariffs on imported steel and aluminum could raise car prices, especially on vehicles made in the United States.

"This could add pressure during a time when affordability is top of mind for consumers and automakers alike," Robert said.

He added that 42% of American-made new cars are currently priced over $50,000. The truck and SUV segments are especially at risk as these larger — and pricier — vehicles use more of these materials.

Farley and Ford Chairman Bill Ford have repeatedly talked about getting new vehicle prices down while also controlling Ford's costs to run the business. Farley said there has been careful inventory and pricing control across the various automakers. But, he said, "we're not naive, we have to work on our costs. This is going to be a heck of a ... market this year."

Which is why potential tariffs and policy changes are disruptions the auto industry can't afford.

“There may even be a speculative part of the market where prices come up because the tariffs are even rumored," Farley said. "So we’ll have to deal with it. That’s what I’m talking about with cost and chaos. It’s a little here, a little there, a couple weeks  or a couple of months of vehicles crossing the border, components crossing the border, that’s going to be a tariff. This is what we’re dealing with right now.”

Staff reporter Jackie Charniga contributed to this article.

Jamie L. LaReau is the senior autos writer who covers Ford Motor Co. for the Detroit Free Press. Contact Jamie at [email protected]. Follow her on Twitter @jlareauan.