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Takeaways
- Experts said that the price of new and used vehicles will increase if US imposes a tariff of 25% on cars and auto components imported from other countries.
- Analysts disagree on the amount that will be passed to consumers.
- Cox said that some drivers will be priced out of new car markets, increasing pressure and prices on the used car market.
Car prices are expected to rise under the latest tariff policy—and not just for new ones.
Analysts say that the Trump administration’s trade policies will likely increase production costs, which will push up prices for new vehicles. This could lead to more people looking for used vehicles, which would drive up prices in a market that is already seeing drivers hold onto their cars for longer.
The latest tariffs—President Donald Trump announced Wednesday that his administration plans to impose a 25% tariff on cars assembled abroad beginning next week—stand to hit a market that has already seen prices move higher in recent years. Average monthly payments are up 26% for new cars and 30% for used cars over the past five years.
“Some consumers get priced out of new vehicles, and they have to trade down to used vehicles—and that puts more pressure on the value of used vehicles," said Jeremy Robb, senior director of economic and industry insights at Cox Automotive.
Trump’s tariffs will have a variety of effects. Engines, transmissions and electrical components, among other parts, are expected to be subjected to the 25% import duty soon. J.P. Morgan says that parts coming from Canada or Mexico may not be subjected to tariffs until there is a system in place to determine what portion of the item came from the U.S.
Cox said that manufacturers are expected to increase prices as the cost of production for each vehicle rises by at least $3,000. Dealers will be less likely to maintain prices if the supply drops, as could happen when tariffs are implemented in an industry that has models cross the border at least six times during assembly.
Asked on Friday whether Americans should buy cars to avoid tariffs, Trump said "No, I don't think so."
J.P. Morgan estimates that tariffs could cost automakers $82 billion per year. Analysts said that if the costs are passed on to consumers, car prices could rise by an average of 11%. Imported cars may cost $5,000 to $15,000 more, while domestic models may sell for $3,000 to $8,000 more if the higher costs are completely shouldered by consumers, according to Goldman Sachs.
“Under the new scheme, virtually all automakers will face significant pressure to raise prices, making it more likely domestic automakers will be able to effect price increases to better offset tariff costs without the risk of material market share loss,” JP Morgan analysts wrote Thursday.
Robb of Cox said that tariffs for used cars are likely to be “fairly inflated”. Wholesale values had already been expected to rise, but prices could increase further as people move into the used market. Robb said that the demand may slow down if tariffs cause a slowdown. But only a certain amount.
Morgan Stanley analysts stated earlier this month that it may be “challenging” to pass on costs without slowing down sales, given that car payments have already reached record highs. Fresh data shows that auto-loan payments are falling behind.
Analysts have stated that manufacturers are unlikely to bring back much assembly to the U.S., because in many cases, domestic manufacturing is more expensive than imports. The Budget Lab at Yale estimated that car and auto prices will rise by 6% once nations retaliate and the industry adjusts.
Jonathan Smoke, Cox’s chief economist, said in a webinar that was held just hours before details on the new tariff policies were announced, “We expect disruption of virtually all North American automobile production.” “Over the long term, we expect to see sales fall, prices for new and used vehicles to rise, and some models eliminated.”
