Car prices will surge by thousands of dollars because of Trump's tariffs. It'll happen before you expect it

CNN

27-03-2025

Get ready to pay more for your next car. Auto prices in the United States will start to rise very soon – perhaps within the next few weeks.
That's because President Donald Trump once again announced plans for 25% tariffs on imported cars and parts that will go into effect April 3, a move that will raise the cost of producing all cars sold in the United States – both imports and those built in American factories – by thousands of dollars each.
Those additional costs will rapidly lift car prices if the tariffs go into effect. Previous plans for tariffs had been paused or postponed twice.
'It is going to be expensive,' said Ivan Drury, director of insights at Edmunds.com. He said it will be an unpleasant sticker shock that could come much sooner than most people realize, even before some of the cars that will now cost more to produce arrive at their local dealerships.
'It's too soon to tell how much,' he said. 'But it'll be a couple of thousands of dollars, if not more.'
Automakers won't necessarily raise their wholesale prices, which are paid by dealers, by the full cost of the tariffs, said Drury. But there are other way to pass on the costs to car buyers.
'They can simply remove some incentives that are quite lucrative,' he said. If automakers drop an offer for car loans at a subsidized 1.9% interest rate, it will reduce their costs, but raise the cost to car buyers by $6,000 to $7,000 per car, Drury added.
Although the tariffs are aimed at boosting US manufacturing by steering buyers to American-made cars, automobiles built in US factories will still be hit with tariffs. That's because there is no such thing as an all-American car. All 10.2 million cars built in US factories last year were built with a significant number of imported parts, mainly from Canada and Mexico.
'The average domestic content is conservatively estimated at only 50% and is likely closer to 40%,' said a fact sheet published Wednesday by the Trump administration. Thus, an 'American' car that costs $40,000 to build could be hit with $5,000 in tariffs because half of its parts come from other countries.
Trump on Wednesday in the Oval Office predicted car prices would fall because of tariffs.
'You're going to see prices going down, but it's going to go down specifically because they're going to buy what we're doing, incentivizing companies and even countries with companies to come into America and build,' Trump said.
But industry experts expect the opposite: Prices will rise for manufacturers and customers. Estimates about the impact of tariffs on production costs range between $3,500 to $12,000 or more per vehicle, depending upon the model, according to the Anderson Economic Group, a Michigan-based think tank.
'There's probably not a vehicle on the market today that wouldn't be affected in some form or fashion by tariffs,' Peter Nagle, automotive economist for S&P Global Mobility, told CNN recently. 'I would think prices would start to change in the one-to-two weeks after the tariffs go into effect.'
The additional cost of the tariffs is only part of the pricing story, Drury said. Car prices are decided largely based on the millions of individual negotiations that take place between a car dealer and a car buyer.
'Yes, cost is a factor. But at the end of day, the price agreed upon is basic economics, supply and demand,' he said.
And that's the reason why car prices could start to climb even before vehicles affected by tariffs arrive at your nearest car dealership, Drury said.
For most automakers other than Tesla, the dealers who are negotiating with buyers are independent business owners who bought the cars at wholesale prices from the automakers, and then determine themselves how much to charge.
'The current inventory on the dealers' lots just went up in value,' Drury said.
Dealers who know the next round of deliveries will cost more won't be as eager to cut a deal on their current supply of cars, even if their stock wasn't affected by any tariffs when they were purchased.
The other major impact on pricing could come from significantly lower availability of cars.
Automakers are likely to cut back on production of cars as they wait to see if tariffs prove to be short-lived. They may also be concerned that the additional cost of tariffs could price out some potential buyers. A reduced supply of new cars can drive up prices all by itself.
That's what happened in 2021 when a computer chip shortage caused deep cuts in car production, which resulted in soaring prices for both new and used cars.
The average transaction price quickly rose, jumping 17% for new vehicles between January and December of that year according to Edmunds' data. Prices for used cars jumped 32% during the same period. This time the impact could be similar.
'If the tariffs go through this time, by mid-April, we expect disruptions (to) virtually all North American vehicle production amounting to 20,000 fewer vehicles produced per day, which is about a 30% hit to production,' said Jonathan Smoke, chief economist for Cox Automotive, during a media call Wednesday. 'Bottom line, lower production, tighter supply and higher prices are around the corner, reminiscent of 2021.'
'Few thought it could be possible that we'd break the chain with Mexico and Canada, but it seems like it's about to happen now,' he added. 'April 3rd seems a bit like a doomsday if those tariffs on Mexico and Canada go through.'