Professional studio pictures | E+ | Getty Images
President-elect Donald Trump may have been vocal Increase in tariffs on imported goodswhich experts say could drive up car prices.
Trump has talked about introducing an additional measure 10% tariff on Chinese imported goodsand additional tariffs of 25% on all products from Mexico and Canada. To FridayTrump told the European Union that it had to reduce its trade gap with the USA by buying oil and gas, otherwise it could also face tariffs.
Tariffs are taxes on imported goods paid by 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. According to Ivan Drury, director of insights at Edmunds, some components even cross the U.S. border multiple times before even arriving at the factory.
“There is no such thing as a 100% American vehicle,” Drury said. “There is so much complexity, even when it seems like a simple thing.”
Component tariffs could add $600 to $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 U.S. — could rise by $1,750 to $10,000.
More from Personal Finance:
Some shoppers prefer retail credit cards despite a 30% APR
Paying off debt is Americans’ top financial goal for 2025
What the Fed’s third rate cut in 2024 means for you
If tariffs are imposed, the sticker prices drivers pay at dealerships will eventually rise, experts say. But car manufacturers and sellers may also have to bear some of the costs.
“The costs will be spread across everyone involved: automakers, dealers and consumers,” said Erin Keating, executive analyst at Cox Automotive. “No company is going to pass all of these costs directly onto their consumers.”
Here’s what you should know.
Why cars may face higher tariffs than other goods
The automotive sector’s supply chain is unique because some parts move back and forth across international borders as the part is built and assembled, experts say.
“People don’t really understand where their vehicle is built and how it’s assembled from parts all over the world,” Drury said.
Let’s take a steering wheel for example. Electronic sensors or other parts that go into the steering wheel come to the U.S. for assembly from countries like Germany, Drury said. The steering wheel is then sent to Mexico to be sewn, then returned to the US and installed into the vehicle.
Given the supply chain, vehicles could face “incrementally higher tariffs” compared to other products, Keating said.
If tariffs increase manufacturing costs, automakers can’t risk passing the entire bill on 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 be with these rates, it’s impossible to move that many (cars).”
However, there is a silver lining: Many cars that will be on the lots in early 2025 are already assembled or are currently being manufactured, further increasing the available supply next year, Keating said.
What car buyers can expect in 2025
Car buyers likely won’t see prices that take new rates into account in 2025, experts say. Base prices will remain about the same, and dealers will likely offer more incentives to attract buyers next year.
According to Keating, the average transaction price for new cars is expected to be between $47,000 and $48,000. In November, the average price was $48,724, up 1.5% year over year. per Kelley Blue Book data.
Although the average price is above pre-pandemic levels, “the good news is that it is relatively stable. We don’t waver everywhere,” Keating said.
In December, average auto loan rates for new cars were 9.01%, while the cost of borrowing for used cars was 13.76%. per Cox Automotive. The average interest rates for both types of loans are below about a full percentage point from a 24-year high earlier this year.
“We expect consumers to see even lower interest rates through the spring, which would create the most normal and favorable buying environment since 2019,” said Jonathan Smoke, chief economist at Cox Automotive. wrote in the report.
For now, experts are optimistic about the auto market next year as inventory levels and deal opportunities grow.
“Tariffs or not, there will be more stimulus,” Drury said.
