Proposed Tariffs Could Add Thousands to the Cost of New Cars in the U.S.
Recent proposals for tariffs on imports from Canada and Mexico could potentially drive up U.S. car prices substantially, squeezing consumers and disrupting the intricate automotive supply chains that span the continent. A new study suggests that these tariffs, if implemented, could add as much as $12,000 to the price tag of new vehicles.
According to a study from Anderson Economic Group, an automotive consultant based in East Lansing, Michigan, the cost to build a crossover utility vehicle could rise by at least $4,000. Furthermore, the increase for an electric vehicle could potentially triple that amount. The study anticipates that these rising costs will likely be passed on to consumers.
“That kind of cost increase will lead directly — and I expect almost immediately — to a decline in sales of the models that have the biggest trade impacts,” stated Patrick Anderson, CEO of Anderson Economic Group, during an interview.
This situation threatens to intensify an already challenging automotive affordability crisis. Even before these potential tariffs, sticker prices were already approaching an average of $50,000 – a more than 20% increase compared to five years ago. Moreover, these proposals raise concerns about President Trump’s campaign promises to curb inflation, particularly as consumer confidence declines due to anxieties about the impact of these import taxes.
Following a temporary reprieve, President Trump announced that the tariffs would take effect on March 4. This decision disregards warnings from industry leaders, who forecast significant damage to sales, profits, and employment within the industry. These tariffs could affect some of the most popular and widely-sold models, including the Chevrolet Silverado pickup and the Ford Bronco Sport SUV.
Top executives from General Motors Co., Ford Motor Co., and Chrysler-parent Stellantis NV met with the Commerce Department via Zoom to express their concerns about the economic consequences of the proposed tariffs. Ford and Stellantis executives emphasized that the White House should instead focus on the millions of imported vehicles without U.S. parts content, according to sources familiar with the matter.
Consumers might see certain models disappear from dealerships as automakers are compelled to cease production of vehicles heavily affected by these tariffs. Even if these tariffs prove short-lived, carmakers are already taking measures to mitigate the fallout.
When analyzing the impact of a 25% tariff on Mexico and Canada, as well as a 10% levy on imports from China, Anderson Economic Group estimated that a large SUV with “significant” Mexican content could see a price increase of nearly $9,000, while a pickup truck could face an $8,000 price hike.
“Tariffs on the scale that President Trump has threatened would have a sharp negative effect on auto sales,” Anderson added.
Car sales are already experiencing a downturn as consumers grapple with high prices and rising borrowing costs. Government data revealed that a decline in January sales further reduced inflation-adjusted consumer spending, marking the most significant drop in nearly four years.
Dan Hearsch, leader of the Americas automotive practice at AlixPartners, a consulting firm, estimates that U.S. auto sales could decrease by as much as half a million vehicles, even with moderate price increases. This reflects the possibility that automakers may halt production of certain vehicle models in Canada and Mexico, shifting production to their U.S. factories.
“Some of those vehicles that can’t be produced in the US just probably won’t be made for a while,” Hearsch said in an interview. Ford, for example, manufactures its popular Maverick small pickup truck, Bronco Sport compact SUV, and the electric Mustang Mach-e exclusively in Mexico.
Ford CEO Jim Farley, in a February statement, warned that a 25% tariff on Canada and Mexico “will blow a hole in the U.S. industry that we have never seen.”
Similarly, GM produces its full-size Chevrolet Silverado pickups in Mexico, Canada, and the U.S., while Stellantis produces Ram pickups in Mexico and the U.S. These automakers may opt to relocate some of that output domestically, though they might correspondingly cease the sale of certain versions of these trucks manufactured in Canada and Mexico.
“You’ll see some model and trim types just disappear,” Anderson said.
The proposed tariffs are intended to curb the flow of undocumented immigrants and illegal drugs into the U.S., leading to hopes within the industry that these measures will be temporary, contingent on progress from the U.S. allies.
“The expectation is that — at worst — they’re around for a couple months and, at best, they keep getting pushed” off, said Hearsch, who is in regular consultation with automotive leaders. “Those are not intended as trade actions. Those are border security negotiations.”
In the meantime, auto companies are taking preventative measures, such as stockpiling supplies. Ford’s engine plant located in Windsor, Ont., is rapidly shipping product across the U.S.-Canada border anticipating the tariffs, according to local union representative John D’Agnolo. The company has recently secured warehouse space in the U.S. to store finished engines and parts.
“We usually store them here until we’re ready to send to the truck plants,” D’Agnolo said. “But they’re finding places in the states to store those engines so that they don’t get tariffed.”
Automakers are also urging their suppliers to build up parts inventory and expedite their transfer to U.S. warehouses “so that we can at least create a buffer,” Hearsch said.
While the precise financial impact on automaker profits remains difficult to determine until the tariffs are implemented, the potential repercussions are significant. The industry operates with single-digit profit margins and is currently experiencing losses on its new electric vehicle model lines.
“It’s got everybody in an absolute spin,” said Hearsch, reflecting on the current industry focus, with long-term planning taking a backseat to the immediate concerns regarding these impending tariffs.
— With assistance from Jacob Lorinc and Molly Smith.
