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President-elect Trump has been outspoken about the possibility of raising tariffs on imported goods, which experts say could push up car prices.
Trump has talked about implementing additional Add 10% tariff to imported goods from Chinaand impose a 25% tariff on all products from Mexico and Canada. On Friday, Trump told the European Union that it must buy oil and natural gas to narrow its trade deficit with the United States or face tariffs.
Tariffs are taxes levied on imported goods and are paid by the U.S. companies that import those goods.
Tariffs have the potential to disproportionately affect vehicle prices because the materials used to assemble vehicles come from different parts of the world. Some components cross the U.S. border multiple times before they even arrive at the factory, said Ivan Drury, Edmunds director of insights.
“There is no 100 percent American-made car in the world,” Drewry said. “Even though it seems simple, it’s very complicated.”
A Wells Fargo analyst report estimated that tariffs on parts from Mexico, Canada and China could increase by $600 to $2,500 per vehicle. Prices for cars assembled in Mexico and Canada, which account for about 23% of U.S. auto sales, could rise by $1,750 to $10,000.
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Experts say the sticker prices drivers pay at dealerships will eventually rise if the tariffs go into effect. But automakers and sellers may also have to bear some of the costs.
“The costs will be spread across all stakeholders: automakers, dealers and consumers,” said Erin Keating, executive analyst at Cox Automotive. “No single company will pass all of these costs directly to consumers. ”
Here’s what to know.
Why cars may attract more tariffs than other goods
Experts say the automotive industry’s supply chain is unique because during the process of manufacturing and assembling parts, some move back and forth across international borders.
“People don’t really know where their vehicle is made or how it’s put together from parts from around the world,” Drury said.
Take the steering wheel, for example. Drury said electronic sensors or other parts on steering wheels are shipped from countries such as Germany to the United States for assembly. The steering wheel is then sent to Mexico for stitching before returning to the United States for installation on the vehicle.
Keating said cars were likely “to attract higher tariffs” compared to other products, given the supply chain.
Experts say if tariffs increase manufacturing costs, automakers can’t risk passing the full cost on to consumers.
Drewry said automakers and dealers may have to “bear some of the burden.” “If you look at how expensive vehicles are going to be with these tariffs, they’re not going to be able to move that many (cars).”
However, Keating said there is a silver lining – many of the cars due to hit the market in early 2025 have already been assembled or are being manufactured, which will further increase the supply available next year.
What car buyers can expect in 2025
Experts say car buyers in 2025 are unlikely to see prices that factor in the new tariffs. Base prices will be about the same, and dealers may offer more incentives next year to attract buyers.
Keating said the average transaction price for a new vehicle is expected to hover between $47,000 and $48,000. As of November, the average price was $48,724, up 1.5% from the same period last year. Every Kelley Blue Book data.
While the average price is higher than pre-pandemic levels, “the good news is it’s relatively stable. We’re not swinging it around,” Keating said.
As of December, the average car loan interest rate for new cars was 9.01%, while the borrowing cost for used cars was 13.76%. Every Cox Automotive. Average interest rate for both loans dropped That’s about a full percentage point above the 24-year high earlier this year.
“We expect consumers will likely see lower interest rates by spring, which will create the most normal and favorable buying environment since 2019,” said Jonathan Smoke, chief economist at Cox Automotive. Wrote Reporting.
Currently, experts are optimistic about next year’s auto market as inventory and deal opportunities increase.
“Tariffs or no tariffs, there are more incentives,” Drewry said.
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