President Donald Trump’s 25% tariffs on imported vehicles, implemented on April 3, are poised to create a seismic shift in the automotive industry. These tariffs remain, even as other country-based levies have receded. To that end, we should expect the cost of vehicles to increase sharply, and thus a further reduction in sales.
The Center for Automotive Research estimates that the new tariffs will increase costs for U.S. automakers by approximately $107.7 billion. Major Detroit automakers General Motors, Ford Motor, and Stellantis are staring down an estimated $41.9 billion burden. This figure underscores the monumental fiscal hurdles they’ll face. Analysts are anticipating some big moves in the industry. Goldman Sachs analyst Mark Delaney has forecast U.S. net vehicle prices would rise by 2,000 to 4,000 over the next six to twelve months.
Consumers are facing unprecedented price shock. According to Cox Automotive, the average cost of a new vehicle in the U.S. is approaching $50,000, putting it out of reach for many. In the last couple of years, the cost of financing a new vehicle has skyrocketed due to inflationary pressures. Taken together, this increase is even more severely constraining consumer spending power.
The tariffs’ impacts go beyond sticker shock at the register. Analysts predict implications worldwide for the auto industry, as the increased production costs will affect U.S. manufacturers as well as their foreign counterparts. Felix Stellmaszek, an industry expert, noted, “What we’re seeing now is a structural shift, driven by policy, that’s likely to be long-lasting.” He further stated, “This may well be the most consequential year for the auto industry in history — not just because of immediate cost pressures, but because it’s forcing fundamental change in how and where the industry builds.”
Cox Automotive’s Chief Economist Jonathan Smoke anticipates a significant increase of around $6,000 for imported vehicles due to the tariffs on non-U.S. assembled cars. Domestic, non-recalled vehicles will incur added expense beginning in November. Calculations estimate that new tariffs on automotive parts would increase the costs of new vehicles by up to $3,600 on average.
The potential wider economic knock-on effect is worrisome too. Just a change of a few million units in vehicle sales, analysts predict, can have far-ranging macroeconomic effects. It is a point that automotive analyst Sam Abuelsamid emphasized. He said even a few million unit reduction in sales will have “cascading effects economically.” He continued that the impact of rising prices rest across every sector will impact consumers’ purchasing power, perhaps creating a vicious economic cycle of rising costs.
The University of Michigan’s survey from June registered a larger-than-expected consumer sentiment decline. This drop occurred during an unprecedented period of inflation, which peaked at its highest level since 1981. As consumers look to save on discretionary spending, analysts are gearing up for heavy contractions in the automotive market.
Recognizing this new reality, and to help alleviate consumer fears about the price tag to its consumers, several automakers are proactively working to address this issue. Hyundai Motor recently announced that it would not raise prices for at least two months in an effort to ease financial pressure on potential buyers.
The Boston Consulting Group (BCG) forecasts a jaw-dropping cost avalanche hitting the automotive industry. They project that such tariffs could bring in $110 billion to $160 billion annually. Analysts are bracing for toxic months to come, given the fiscal stakes. In fact, they predict that almost 20% of total U.S. new-vehicle market revenues are at risk.