Car prices are already at historic highs, while most shoppers are underwater on their loans. Tariffs are about to make a bad situation even worse.
Car prices are already at historic highs, while most shoppers are underwater on their loans. Tariffs are about to make a bad situation even worse.
Apr 3, 2025, 4:06 PM UTC
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Andrew J. Hawkins
Andrew J. Hawkins is transportation editor with 10+ years of experience who covers EVs, public transportation, and aviation. His work has appeared in The New York Daily News and City & State.
“Liberation Day” has arrived. Get ready to be liberated from affordable vehicle prices.
As promised, President Donald Trump’s 25 percent tariffs for imported vehicles went into effect Thursday, sending the auto industry into full panic mode. Some analysts are predicting a $5,000 to $10,000 price hike on new cars out of the gate, while others are still struggling to wrap their heads around the logic of Trump’s auto tariffs. It was a nuclear-level threat for the already unsettled auto industry, with little relief in sight.
Trump’s argument is relatively straightforward, if nonsensical: Don’t like the tariffs? Just buy an American-made car. The only problem is that there is no such thing. Even vehicles made in the US rely on a complex supply chain that runs across borders and through multiple nations. The average car contains roughly 30,000 individual parts. Even cars produced domestically obtain 40–50 percent of their parts from abroad, according to Dan Ives, the global head of technology research at Wedbush Securities, a financial services firm.
“The tariffs are a debacle of epic proportions for the auto industry and US consumers as the concept of a US made car with all US parts is a fairy tale fictional narrative,” Ives wrote in a note to clients on Thursday. “The more people we speak with from the auto industry around the world it is becoming crystal clear this tariff/US policy will cause pure chaos to the global auto industry and will raise the prices of a typical car to a US consumer by $5k to $10k out of the gates.”
Other firms were predicting an even higher price increase as the new tariffs started to go into effect. Anderson Economic Group concluded that the tariffs could boost manufacturing costs by $4,000 to more than $10,000 per car, depending on the vehicle model. Battery-electric crossover SUVs could see the biggest spike of $12,000.
The effect could be even more pronounced at the lower end of the market, with many of the most affordable vehicles from GM, Ford, Kia, and Hyundai produced outside the US. Affordability is already a huge problem for car buyers, with average transactions for new cars clocking in at $48,118 in January, according to market researcher Edmunds.
There are only 27 vehicles available under $30,000 — four of which have already been discontinued, including the Chevy Malibu and Nissan Versa. Many of these models are sourced from Mexico, Japan, and South Korea. Last year, these models made up 13 percent of all vehicles sold in the US.
Slapping tariffs on these vehicles as they arrive in the US would “drastically” change the dynamics, pushing sticker prices up by an average of $5,300, according to Erin Keating, executive analyst at Cox Automotive.
“This is difficult news for an industry already staring down an affordability problem,” Keating added in a statement.
For decades, car ownership has been a hallmark of the American dream. We built our communities around car ownership, squeezing out transit, and shrinking pedestrian spaces to make way for bigger and bigger vehicles. For most people in the US, owning a car isn’t an option; it’s a necessity to participate in daily life.
Consumers were already facing elevated costs when financing new vehicles before the tariffs hit. One in 5 new car buyers are taking on seven-year loans to finance a new car purchase, in a sign of increasing financial stress, Edmunds says. And an increasing number of people with car loans owe more than their vehicle is worth.
“Even with rates holding relatively flat, the continued reliance on extended terms and high monthly payments reveals how challenging car buying remains,” says Jessica Caldwell, head of insights at Edmunds. “And now, with auto tariffs officially taking effect today, there’s a risk that they will add fuel to the fire — triggering a disruption that could push vehicles even further out of reach for many shoppers.”
The Trump administration is considering other methods of relief for car buyers. The White House said it is calling for tax breaks to incentivize purchases of US-made vehicles and pursuing deregulation to lower industrywide costs. But the outcome is uncertain.
With prices expected to surge, many people who had been considering a car purchase are crowding into dealerships, trying to take advantage of pre-tariff prices. Consumer experts advise against panic shopping, but of course, most people aren’t thinking rationally as they watch the news with growing anxiety.
“It never pays to rush out and make a rash decision that you might regret,” says Jake Fisher, senior director of Consumer Reports’ Auto Test Center. “Even if the tariffs are here to stay, in a short time, the value of your trade-in will increase too.”
Some automakers are taking advantage of elevated inventories — the total number of new and used vehicles that dealers have for sale — to offer short-term incentives to panicked shoppers. Ford is offering employee discounts on most models, including the Mustang Mach-E and Maverick, both of which are built in Mexico, to all shoppers through June 2nd, Reuters reports. Ford had more than four months of inventory in February, above the industry average of nearly three months, according to Cox.
Hyundai’s response was to announce a $21 billion investment in the US to stave off the effect of the tariffs. And others are taking a more drastic approach. Stellantis said today it was temporarily laying off 900 workers at five of its US factories and pausing production at assembly plants in Canada and Mexico.
Even Tesla, which is run by billionaire best buddy Elon Musk, is exposed to these new tariffs. The company assembles its vehicles in the US, but 20–25 percent of its parts are sourced from Mexico, according to a list of car part origins published by the National Highway Traffic Safety Administration.
The tariffs will likely lead to more automakers trying to negotiate deals or exemptions with the administration. And ultimately, this is probably what Trump wants: to be the most important person in the room, at the center of the chaos he helped create.
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