Physical Address
304 North Cardinal St.
Dorchester Center, MA 02124
Professionalstudioimages | E+ | Getty Images
The elected president Donald Trump spoke about the potential tariff increase on imported goodswhich, according to experts, could raise car prices.
Trump talked about introducing additional 10% customs duty on goods imported from Chinaas well as adding tariffs of 25% on all goods from Mexico and Canada. incl FridayTrump told the European Union that it must close the trade gap with the US by buying oil and gas, or it too could face tariffs.
Tariffs are taxes on imported goods that are paid by US companies that import those goods.
Tariffs can disproportionately affect car prices because the materials used to build a car come from different parts of the world. Some components even cross U.S. borders multiple times before reaching the factory, according to Ivan Drury, director of information research at Edmunds.
“There is no such thing as a 100% American car,” Drury said. “There are so many complexities here, even if it’s a seemingly simple thing.”
Component tariffs could add between $600 and $2,500 per car to parts from Mexico, Canada and China, Wells Fargo analysts estimated in a note. Prices for cars assembled in Mexico and Canada — which account for about 23% of cars sold in the U.S. — could rise from $1,750 to $10,000.
More from Personal Finance:
Some shoppers prefer retail store credit cards despite the 30% annual interest rate
Paying off debt is Americans’ top financial goal for 2025
What a third Fed rate cut in 2024 means for you
Experts say if the tariffs are implemented, the sticker price drivers pay at the dealership will eventually increase. But car manufacturers and retailers may also have to shoulder 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 pass all those costs directly onto their consumers.”
Here’s what you need to know.
Why cars can be charged higher tariffs than other goods
Experts say the supply chain in the automotive sector is unique because some parts move back and forth across international borders while parts are created and assembled.
“People don’t really know where their car is made and how it’s assembled from parts all over the world,” Drury said.
Take, for example, the steering wheel. Electronic sensors or other parts that go into the steering wheel are shipped to the United States for assembly from countries such as Germany, Drury said. The steering wheel is then sent to Mexico to be stitched, only to return to the US to be installed in the car.
Given the supply chain, vehicles can have “progressively higher tariffs” compared to other products, Keating said.
Experts say that if tariffs increase the cost of production, automakers can’t risk passing the entire tab on to the buyer.
Automakers and dealers may have to “bear some of the burden,” Drury said. “When you look at how expensive cars can be with those rates, there’s no way to transport that many (cars).”
However, there are upsides: Many of the cars that will hit the series in early 2025 have already been assembled or are currently in production, further adding to inventory next year, Keating said.
What awaits car buyers in 2025
Car buyers in 2025 are unlikely to see prices adjusted for the new tariffs, experts say. Base prices will be roughly the same, and dealers are likely to offer more incentives to attract buyers next year.
The average transaction price for new cars is expected to range from $47,000 to $48,000, according to Keating. As of November, the average price was $48,724, up 1.5% from a year earlier. trans Data from Kelley Blue Book.
While the average price is higher than pre-pandemic levels, “the good news is that it’s relatively stable. We’re not fluctuating across the board,” Keating said.
As of December, the average interest rate on new car loans is 9.01%, while the cost of used car loans is 13.76%. trans Cox Automotive. Average rates for both types of loans do not work down about a full percent from its 24-year high earlier this year.
“We expect that consumers could see even lower rates by spring, creating the most normal and supportive 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 and deal opportunities grow.
“Tariffs or no tariffs, there will be more incentives,” Drury said.
