Cars Are About to Get Even More Expensive Thanks to Trump's Tariffs

Prices for cars will be higher than they already are because of President-elect Donald Trump's tariffs, experts have warned.

Trump on Monday threatened to slap a 25 percent tariff on all goods imported from Mexico and Canada on his first day in office, as well as an additional 10 percent on goods from China.

It is the companies that import goods into the United States that directly pay tariffs, but they typically pass their increased costs onto their customers in the form of higher prices.

The tariff hikes will deal a huge blow to automakers like General Motors, Ford and Stellantis that manufacture popular vehicles in Mexico or Canada.

GM makes its Chevrolet Silverado pickup trucks in Mexico and Canada, while Stellantis makes Ram and Ford makes its Maverick pickups in Mexico. Those vehicles and many others would become more expensive if Trump follows through with imposing the tariffs.

Newsweek has contacted GM, Ford and Stellantis, as well as a spokesperson for Trump, for comment via email.

Automotive expert John McElroy told Newsweek that if Trump "follows through on his threat to level higher tariffs on all imported vehicles and components, it will wreak havoc in the auto industry, and will do severe financial damage to automakers, suppliers and car dealers in the U.S."

He said: "The automotive supply chain is globally interlinked, and is especially co-dependent across the U.S., Canadian and Mexican borders. It can not be changed quickly, and the U.S. does not have the manufacturing capacity to on-shore it all."

The tariff threats are "likely a bargaining ploy," he said. "While you have to take these threats seriously, the last thing Trump wants to see is the U.S. auto industry collapse on his watch."

McElroy earlier told 7 News Detroit that the impact of the tariffs would immediately be felt at car dealerships.

"Car dealerships that sell imported cars are going to see the prices of those things go up immediately," he said. "They will not waste any time at all. They will pass those costs along. So dealers will charge more, car companies will charge more, car suppliers will charge more and then others will follow suit."

Sam Fiorani, an industry analyst at AutoForecastSolutions, told Reuters that GM may be able to absorb some costs from its highly profitable pickup trucks, but manufacturers selling lower-cost vehicles could find it difficult to continue building profitable models.

"Somebody is going to have to eat that cost and that is going to the manufacturer or customer," Fiorani said. "All vehicles sold in the United States would be more expensive or considerably less profitable."

It comes as cars have already become unaffordable for millions of Americans in recent years.

An October 2023 report in MarketWatch calculated that more than 60 percent of U.S. households cannot afford a new car without being financially burdened. It said they would need an income of at least $100,000 to do so if they are following standard budgeting advice.

This chart, provided by Statista, shows the value of the top 10 U.S. goods imports in 2023.

Newsweek reported in January that prices for new and used cars have increased dramatically in the aftermath of the COVID-19 pandemic as the car industry faced supply chain disruptions and shortages.

"Simply put, cars have become more expensive," Joseph Yoon, consumer insights analyst at car consumer guide Edmunds, told Newsweek at the time. "In November 2019, the average transaction price for a new vehicle was $38,500. In November of 2023, that figure jumped to $47,939."

Yoon said that automakers have also increasingly focused on producing expensive SUVS and trucks and dropped lower-cost vehicles from their lineups.

Supply chain disruptions forced manufacturers "to prioritize more profitable, higher-trim vehicles in their lineups, which meant the inventory available to purchase also carried a higher sticker price," he said.

"Manufacturers cite disappointing sales results as primary reasons for discontinuing smaller, more affordable vehicles from their lineup. But car buyers' preferences have also shifted dramatically to larger trucks and SUVs in the past 10 years or so, and even more toward high-tech and comfort amenities in the form of cameras, sensors, radars and large infotainment screens."

Update 11/29/2024 5:45 a.m. ET: This article has been updated to add comment from John McElroy.