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president-elect donald trump has expressed his opinion on potentially increasing tariffs on imported goodswhich according to experts could increase car prices.
Trump has talked about implementing an additional measure 10% tariff on products imported from Chinain addition to adding 25% tariffs to all products from Mexico and Canada. In FridayTrump told the European Union it must narrow its trade gap with the United States by buying oil and gas, or it could also face tariffs.
Tariffs are taxes on imported goods, paid by the U.S. companies that import those goods.
Tariffs have the potential to disproportionately affect car prices because the materials used to assemble a vehicle come from different parts of the world. Some components even cross U.S. borders multiple times before reaching the factory, according to Ivan Drury, chief knowledge officer at Edmunds.
“There is no such thing as a 100% American vehicle,” Drury said. “There is a lot of complexity, even if it is something seemingly simple.”
Tariffs on components could add between $600 and $2,500 per vehicle on parts from Mexico, Canada and China, according to estimates in a Wells Fargo analyst note. Prices for vehicles assembled in Mexico and Canada, which account for about 23% of vehicles sold in the United States, could rise by between $1,750 and $10,000.
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If fees are enacted, the price drivers pay at the dealership will eventually rise, experts say. But automakers and sellers may also have to bear some of the costs.
“The cost will be spread across all stakeholders: automakers, dealers and consumers,” said Erin Keating, executive analyst at Cox Automotive. “No company is going to offload all those expenses directly onto its consumers.”
This is what you should know.
Why cars may have more tariffs than other goods
The automotive supply chain is unique because some parts go back and forth across international borders as the part is built and assembled, experts say.
“People don’t really know where their vehicle is built and how it’s assembled from parts around the world,” Drury said.
Take a steering wheel as an example. Electronic sensors or other parts that go on the steering wheel come to the United States to be assembled from countries such as Germany, Drury said. The steering wheel is then sent to Mexico to be sewn and then returned to the US to be installed on the vehicle.
Vehicles could face “more incremental tariffs” compared to other products, given the supply chain, Keating said.
If tariffs increase the cost of manufacturing, automakers can’t risk passing the entire bill to the buyer, experts say.
Automakers and dealers may have to “bear some of the burden,” Drury said. “If you look at how expensive vehicles could become with those tariffs, there’s no way they can move that many (cars).”
There is a silver lining, however: Many cars that will be on lots in early 2025 have already been assembled or are currently being manufactured, which will add to the supply available next year, Keating said.
What car buyers can expect in 2025
Car buyers in 2025 are unlikely to see prices that take the new tariffs into account, experts say. Baseline prices will be about the same, and dealers will likely offer more incentives to attract buyers next year.
The average transaction price for new cars is expected to be between $47,000 and $48,000, according to Keating. As of November, the average price was $48,724, 1.5% higher than a year before, by 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 wavering everywhere,” Keating said.
As of December, average new car loan rates are 9.01%, while borrowing costs for used vehicles are 13.76%. by Cox Automotive. The average rates for both types of loans. they are down about a full percentage point from a 24-year high earlier this year.
“We expect consumers to see even lower rates by spring, which would create the most normal and favorable shopping environment since 2019,” said Jonathan Smoke, chief economist at Cox Automotive. wrote in the report.
For now, experts are optimistic for the auto market next year as inventory and deal opportunities grow.
“Tariffs or no tariffs, there will be more incentives,” Drury said.
