Few industries are more exposed to the new tariffs being imposed by the Trump administration than the car industry. And for car shoppers, that vulnerability spells higher prices and leaner inventories of cars on dealer lots.
To understand the impact of tariffs on car manufacturing, it’s important to realize that there is no such thing as a truly “American” car.
Ford, GM and the U.S. brands under the Stellantis umbrella, such as Jeep, Ram and Dodge, assemble many but not all of their vehicles in U.S. plants. GM, for instance, imports many of its popular Silverado pickup trucks from Mexico. And even cars assembled in, say, Michigan are full of parts and materials that originated outside of the U.S.
Likewise, many Asian and European brands assemble vehicles in the U.S., particularly in plants located in the South. But again, they rely on a complicated mix of domestic and imported parts and materials. Some automotive parts cross a border multiple times before ending up in a fully assembled car that’s ready to hit a dealer’s showroom.
Auto tariffs and their impact
President Donald Trump’s new 25% tariffs on auto imports, including imported parts that don’t comply with the rules of the U.S.-Canada-Mexico trade pact he negotiated in his first term, are already starting to raise prices on cars for sale on lots now, according to anecdotal accounts. Other tariffs, such as those on imported steel and aluminum — two key car-making materials — are bound to push up manufacturers’ costs, too.
Trump announced the auto tariffs in late March, calling them “permanent.” On Monday, though, he said he was considering pausing some tariffs on car companies to give them “a little bit more time” to adjust.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more – straight to your e-mail.
Profit and prosper with the best of expert advice – straight to your e-mail.
Estimates of how much more cars will cost vary, but the consensus among forecasters is that the impact will be painful.
How much will tariffs raise new car prices?
The staff of The Kiplinger Letter estimates that new car prices will rise by $5,000 to $10,000 in the case of foreign brands, and $3,000 for domestic vehicles.
In an analysis of the car-specific tariffs last month, Edmunds.com head of insights Jessica Caldwell noted that “it’s reasonable to expect that vehicle prices will rise, which presents an added challenge to an industry that is already grappling with ongoing affordability concerns.” Edmunds’ data show that the average transaction price of a new vehicle in February was already $47,373, before any tariffs began.
Vehicle availability also figures to worsen, as some key components or materials that used to be imported become prohibitively expensive and manufacturers struggle to line up domestically sourced replacements.
One source at a major automotive supplier tells the Letter that identifying and testing vehicle parts from a new supplier can be a months-long process. And as we witnessed recently with the semiconductor shortage, lacking even one or two components can slow or idle assembly lines, leading to shortages of new cars for sale.
Will used car prices go up because of tariffs?
(Image credit: Getty Images)
Price hikes and less inventory may push would-be buyers to look at the used market instead of buying a new car. That in turn spells higher prices and more competition there, too.
Because of the supply chain problems that hampered production of new cars a few years ago, fewer vehicles were leased at the time, and so fewer lightly used, high-quality leased vehicles will be entering the used market now, just as more shoppers will be jockeying for them.
What other car costs could rise with tariffs?
Even if you aren’t planning to buy a car – new or used – what happens on dealer lots is likely to affect you in other ways. For instance, the new tariffs on imported parts are going to push up repair and maintenance costs for all drivers, on everything from body work to routine brake jobs.
Car insurance premiums, which are already way up since the pandemic, figure to rise more, too, as repairing cars gets more expensive. And even if you don’t own a car, but rent one when you travel, you can expect higher rental rates and fewer options at rental agencies.
Should you buy a car before tariffs have a bigger impact?
The bottom line: If you’re in the market for a car, already own one or ever plan to rent one, you’re going to pay for the new automotive tariffs one way or another.
But before you rush to the dealer before tariffs reverberate, keep in mind it’s always best to buy a car because you need it, not because you’re afraid the car you want could become too expensive in the future or unavailable altogether.
Even before the new tariffs, prices were already high and inventories were limited, so it paid to be flexible about what to buy — and what features you really prioritize. That will be even more true now as the auto tariffs affect the market.
Don’t let fear pressure you into buying. Focus on your personal situation, whether you need a new car, and what you really need from that car.
Related Content
TOPICS