Name: How Tariffs Are Going To Jack Up Car Prices In The U.S.
Uploaded: 2025-03-30T05:30:44.000Z
Duration: 7 min 48 s
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What we're going to be doing is a 25% tariff on all cars that are not made in the United

25% tariffs that the president announced on imported cars as well as parts starting next week.

For some automotive industry economists, the unthinkable has happened.

30 years of free trade across North America virtually wiped out by a single executive order.

Of course, I don't think anyone could have foreseen this happening.

There are all kinds of unintended consequences that will fall into place.

One executive in the industry texted me earlier and he said, this is going to drive the auto industry into a recession.

While there are a lot of possibilities and much is unknown, one thing's for sure.

Cars are about to get more expensive in the U.S.

Some may even be pulled from the market entirely.

If we see prices going up as a result of costs going up either on vehicles or parts, that means that the consumer is going to have a harder time affording these vehicles.

And we estimate you could see a two and a half to over three million unit hit.

This is going to drive some small suppliers out of business.

This is going to cost more to build vehicles.

This is going to eliminate entire segments of vehicles from the pipeline.

All of that will likely take years to execute.

Analysts say the U.S. can't even build really cheap cars domestically.

While a lot of automakers, foreign and domestic, have factories in the U.S., almost half of all vehicles are imported from other countries, Canada, Mexico and countries across Europe and Asia.

Not everyone is going to be affected the same.

Ford and Stellantis, for example, build 74 to 80 percent of their U.S. market vehicles at home.

But every car has at least some of its parts or materials made or procured outside the

And even companies less affected are likely to charge more.

The United States loses all the things that Canada and Mexico bring to the table.

Canada has a great wealth of natural resources and Mexico offers great workers and lower cost.

We're able to compete with the EU and better compete with China.

When you consolidate it to just the U.S., our volume isn't there.

Of course, the news comes at a time when average transaction prices are near record highs.

And for those that already own a car, they're falling behind on car loan payments.

In fact, 6.6 percent of subprime borrowers were at least 60 days past due on their loans as of January 2025, the highest ever.

Companies are currently having trouble paying for the cars they already have.

Add $5,000 to the average vehicle price and we're going to see more defaults on car loans than we already are seeing.

Experts say prices will rise on average about 15 to 20 percent for cars that are either assembled outside the U.S. or contain parts from other countries.

That works out to about a $6,000 price increase, again, on average.

It will hit just over half of the 50 best-selling cars in the U.S. and about half of cheaper models from $40,000 on down.

Prices on cars that aren't directly affected by the tariffs are still expected to rise at least 5 percent, according to Cox Automotive.

The average transaction price, meaning the average price actually paid for a car in the

U.S., was just shy of $50,000 in February.

But once you eliminate the low end of the market, simple math throws that average way out and we're going to quickly see that average price crest $50,000 and go way beyond that.

What that means is that all of the cheapest new cars in the U.S. are now at risk of being wiped out.

That's because just about all of them are made in either Mexico or South Korea.

This includes the Chevrolet Trax and Chevy Trailblazer, the Nissan Sentra and Nissan

Kicks, the Buick Invista and the Buick Encore GX.

It also includes models from Ford, such as the Bronco Sport and Maverick.

When you build a Nissan Sentra in Mexico, you build that for the Mexican market, you build that for the Brazilian market, you build that for the American market.

And so that combined volume gets you to a level where the economies of scale make it make sense to build so many vehicles and sell them in the United States at $25,000.

If you build them in the United States with a tariff, Brazil is not going to accept those vehicles that are that expensive.

General Motors is the largest U.S.-based automaker by volume, but many of its models are made in other countries, including its cheapest, the Chevrolet Trax and Chevy Trailblazer.

Both are shipped from Korea, so both will get slapped with a 25% tariff.

That basically leaves GM with one choice.

How much, if any, of the tariff do they absorb?

The further you raise prices, the more you risk a drop in demand.

If a car costing $25,000 goes up to $30,000, which is totally possible, it may not be affordable for the segment of the population that are looking in that price range or worth the price.

They have to make some really tough decisions on how do they make up that difference in volume.

Then GM has to go back and say, do we have to build this vehicle at all?

If they eliminate that vehicle, then the consumer now has no choice than to buy a used vehicle.

That can only mean that used vehicle prices are going to rise, too.

We saw how production shutdowns and part shortages caused the same thing during the pandemic.

In fact, while used cars are cheaper than they were in the worst of the COVID years, they are still way above 2019 prices.

When we went through COVID, we know that we lost about 10% of the new vehicle market.

We gained some in the higher income quintiles, people who could pay more, so we gained buyers in the higher cost vehicles, but we lost a solid portion of consumers that were able to buy in the new car market.

It's also some of the most popular, like the Toyota RAV4 and Honda CR-V.

You know, you've got a lot of unhappy customers out there who are Honda through and through loyalists who aren't going to be able to potentially buy their vehicle if they need one right now.

CR-V is actually one of the five models most affected when you multiply the number of cars sold by the cost of the tariff on each car.

Others include the Chevy Trax I mentioned earlier, and the Honda HR-V, the Chevy Equinox, and the Subaru Forester.

Each sell well over 100,000 units a year in the United States alone.

They think that if you put a 25% tariff on all vehicles, we can bring a lot of manufacturing back here to the United States, and that may be possible, but in the interim, it's going to create a lot of pressure.

So why can't we just build factories here?

Well, supposedly, that's the purpose of all of this.

But building a factory in the U.S. takes at least two or three years and costs at least a billion dollars, realistically closer to two.

Just retooling an assembly line, one assembly line, costs about a half a billion dollars in several months.

This does not happen with just a flip of a light switch.

Even if there's excess capacity in certain factories, it will still take a matter of time for them to potentially retool if it's not the same exact vehicle they'd be running down that production line, and things like that, and gathering back the workforce and so forth.

So it's a little bit of, it's a very complex decision that companies would need to make on that capital expenditure, especially if it's being made around things that are policy oriented, which of course we know can be fickle every four years.