Tariffs Loom, Threatening Higher Car Prices for U.S. Consumers

Tariffs Threaten to Drive Up Car Prices

As the U.S. considers imposing tariffs on imported steel, aluminum, and vehicles, experts warn that the cost of buying a car is likely to rise significantly for American consumers. This potential shift in trade policy comes at a time when affordability is already a major concern for car buyers.

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Economic analysts say that dealerships have less incentive to cut prices on existing inventory because tariffs could make those vehicles more valuable in the near future.

Rising Prices and Declining Affordability

Monthly car payments are already a financial burden for many Americans. According to Cox Automotive, the average price for a new car in February was roughly $48,000, with the average monthly payment reaching approximately $780. The average monthly bill for used cars also increased, rising to about $560.

“This is making these monthly payments unaffordable for many,” said Cox Automotive Senior Economist Charlie Chesbrough during a recent webinar, highlighting the affordability challenge in the current market.

Potential Trade Impacts

The Trump administration’s trade policies are expected to be a major factor in pushing prices higher. Tariffs of 25% on aluminum and steel are slated to take effect, with the possibility of even higher tariffs if the materials originate in Canada. Additionally, the administration has delayed the implementation of tariffs on other goods from Mexico and Canada.

In 2024, the U.S. imported over 8 million cars and light trucks, with more than half coming from Mexico or Canada. If tariffs on goods from these countries are imposed, assembly costs in North America could increase significantly, potentially adding $3,500 to $12,200 to the cost of a vehicle.

Automakers Face Limited Options

Manufacturers and dealerships have been stockpiling inventory in anticipation of these tariffs, but avoiding the added costs may prove difficult. Even domestic manufacturers relying on American companies might face price hikes due to international sourcing by their suppliers.

Ford CEO James Farley, speaking at a recent conference, noted that the company primarily sources steel from the U.S., but that its suppliers have international sources, meaning it won’t be immune from price increases.

While some assembly operations could potentially be brought back to the U.S., this transition would likely take several years and remain more expensive than importing parts. The Budget Lab at Yale estimates that projected car prices could rise approximately 6% after manufacturers and suppliers adjust to the new trade environment, taking into account potential retaliatory tariffs.

“Long term, a 25% tariff across the Mexico and Canadian border would burrow a hole in the U.S. industry that we have never seen,” said Farley.