President-elect Donald Trump recently stirred discussions by suggesting a rise in tariffs on imported goods, a move experts believe could lead to increased car prices. Trump’s potential plan includes a 10% tariff on products from China and a 25% tariff on imports from Mexico and Canada. He also gave an ultimatum to the European Union, indicating they should narrow their trade gap with the U.S. by purchasing oil and gas, or risk facing tariffs themselves.
In essence, tariffs act as a tax, which U.S. companies need to pay when they import goods from abroad. This could particularly impact car prices since vehicle components are often sourced globally. According to Ivan Drury, director of insights at Edmunds, many car parts travel across borders multiple times before the final assembly. “There’s really no vehicle that’s entirely American,” Drury explained, pointing out the complexities in global sourcing.
Analysts at Wells Fargo have estimated that tariffs on components from Mexico, Canada, and China could increase the cost by $600 to $2,500 per vehicle. For cars manufactured in Mexico and Canada—which make up roughly 23% of the U.S. market—prices could skyrocket by $1,750 to $10,000.
When tariffs are put into action, it’s anticipated that buyers will inevitably see higher sticker prices at dealerships. However, automakers and retailers might also absorb part of these expenses. Erin Keating, executive analyst at Cox Automotive, noted that this financial strain would affect everyone in the chain, from manufacturers to dealers and consumers alike. “It’s not feasible for one entity to pass all the costs onto customers,” Keating stated.
Examining why automobiles could face steeper tariffs than other goods, experts highlight the intricate nature of the auto industry’s supply chain. “Most people aren’t aware of where or how their cars are made,” Drury mentioned. For instance, a steering wheel might include electronic parts from Germany, undergo stitching in Mexico, and finally be installed in the U.S.
Given this complex supply chain, vehicles might indeed be hit with more tariffs than other products. Automakers won’t be able to transfer all the heightened manufacturing costs to consumers, and Drury suggested that both manufacturers and dealers may have to share some of the burden.
Nonetheless, there’s a bright side. Keating pointed out that many cars set to appear on lots in early 2025 have already been built or are in production, meaning there will be more vehicles available next year.
Looking ahead to 2025, car buyers might not immediately notice these tariffs reflected in prices. Experts predict that base prices will stay constant, with dealers likely offering additional incentives to attract customers next year. Keating estimates that the average transaction price for new cars will range between $47,000 and $48,000. By November, the average was $48,724, according to Kelley Blue Book, marking a 1.5% rise from the previous year.
Despite being higher than pre-pandemic levels, Keating reassures that prices have remained relatively stable. As of December, Cox Automotive reported average auto loan rates of 9.01% for new cars and 13.76% for used cars. Both rates have dipped about a full percentage point from earlier in the year.
Looking forward, Jonathan Smoke, chief economist at Cox Automotive, anticipates that consumer borrowing costs could further decrease by spring, potentially creating the most favorable buying conditions since 2019. With or without tariffs, experts are hopeful about 2025’s automotive market, expecting an uptick in inventory and deals. “Incentives are on the rise,” Drury noted, suggesting plenty of opportunities for car buyers.
