Sticker Shock Ahead: How Tariffs Could Affect Car Prices
The automobile industry is on the cusp of some huge changes. Things will become much clearer once President Trump’s tariffs on imports coming in from Canada and Mexico come into effect. They will take their toll on the prices of cars, manufacturing strategies, and even the kind of choices that consumers make.
Some have forecast immediate price hikes, while others think the effects will be more gradual. So, should you rush out to buy a car before prices spike, or is this yet another one of those political maneuvers with delayed consequences?
What’s Behind the Tariffs?
President Trump announced a 25% tariff on imports from Canada and Mexico by late 2024, intending to somewhat ameliorate his immigration and drug trafficking allegations, alongside the issue of trade imbalances. The tariffs began on March 4, 2025, and they cover a wide range of goods, with the automotive sector at the forefront.
The administration argues that these measures will lead to more production at home and save American jobs. This criticizes that the North American auto industry is so interconnected that when tariffs of that nature pinch in, there is a likelihood of disrupting the supply chain as well as increasing the prices of the product manufacturers and even the consumers.
How Much Could Prices Rise?
Estimates about how much extra cars will have to be sold for, in order to make up for the tariffs, vary widely among analysts.
Alliance for Automotive Innovation: A number of their members claim the price of vehicles will go up by as much as 25% based on the model and imported features.
Anderson Economic Group: Its study pegs the increase in new car prices at about $12,000, with the most popular models, such as the Chevrolet Silverado and Ford Bronco, being hit the hardest.
Kelley Blue Book: The average estimate puts the increase in tariffs at $4,000 to $6,000 on mid-range cars, though the electric car variations will go up much more due to their dependence on batteries from outside the country.
The projected increases would come through escalated production costs pushed to consumers. This will certainly bring even higher prices for brands that make most of their sales overseas, such as BMW and Mercedes-Benz.
A Delayed Impact? Not Everyone Agrees
While some professionals predict instant price adjustments, others say that the changes will happen over time:
Existing Contracts: Supply contracts with automakers could delay changes for as long as half a year—upward pressure does not usually find its way to the consumer right away.
Manufacturer Strategies: Some manufacturers can absorb a temporary price increase and keep the final price of the car constant
Dealership Incentives: There might be rebates and better financing to allow dealers to recoup the higher costs through customers but maintain sales figures at the same time.
The President gave a 30-day deferment to the U.S. automakers on the new tariffs, enabling such companies to have some temporary relief and adjust to this new development strategically. Some speculate that automakers will aggressively push sales on their inventory they have in stock before the full weight of the tariffs sets in.
Impact on the Used Car Market
The used car industry is another sector that is likely to feel the effects of these tariffs. If there is a substantial increase in new car prices, more consumers might turn to the pre-owned market, thereby increasing demand and driving prices up.
Increased Demand: Lowered consumer acceptance of overpriced new vehicles will give used vehicles increased demand.
Leasing Market Effects: As new car sales reduce, brighter prospects may pen up in the lease market, although lease-end buyouts may increase in price because of higher residual values.
Parts and Repairs: Higher tariffs could also increase costs for vehicle repairs and maintenance since a substantial number of replacement parts are imported. In turn, this will make an older car more expensive to maintain.
Could There Be Any Benefits?
Tariff supporters argue that this will increase American manufacturing because foreign vehicles will be more expensive, thereby giving other American automakers some competitive edge. The United Auto Workers (UAW) union is in support of the tariffs and hopes that this will help bring jobs and factories back to the U.S.
While these benefits might seem appealing, some critics say that higher prices may reduce demand, which might cancel out any growth in manufacturing. These tariffs could also interfere with integrated supply chains created under the USMCA agreement, resulting in inefficiencies and higher costs.
What Should You Do?
If you want to get a new car, you should probably make the purchase as soon as possible to avoid the high prices. You could also wait a couple of months to see what manufacturers and dealerships are doing in the next few months with regard to the tariffs.
When it comes to used cars, be ready for a lot more competition as more people purchase pre-owned vehicles to avoid the skyrocketed new car prices. You may also want to purchase certified pre-owned (CPO) options, considering the heightened costs associated with aging the vehicle and the warranty that comes with it.
Early shopping: Whether you're buying a new or used car, the earlier you shop, the more money you save before the price hikes hit their peak.
Consider leasing options: If financing is out of budget for you, then perhaps a new lease will offer you the best price, however, prepare for high buyout prices when the lease ends.
Keep an eye on promotions from manufacturers: Automakers may use deals and discounted financing options as a means to try and cover the higher costs while trying to get their cars sold.
Look into Alternative Fuel Vehicles: As gas costs continue to change, demand for hybrid and electric vehicles may vary due to price changes from the tariff. Investigating savings from fuel efficiency over extended periods might offset the initial expenses.