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President-elect Donald Trump there was a lot of talk about the potential raising customs duties for imported goodswhich, according to experts, may result in an increase in car prices.
Trump talked about implementing an additional one 10% duty on Chinese imported goodsand adding tariffs of 25% on all products from Mexico and Canada. ON FridayTrump has told the European Union it must reduce the trade gap with the U.S. by buying oil and gas or tariffs could also be imposed.
Tariffs are taxes on imported goods, paid by U.S. companies that import those goods.
Tariffs can disproportionately affect car prices because the materials used to assemble the vehicle come from different parts of the world. According to Ivan Drury, Edmunds' director of research, some components cross U.S. borders multiple times before they even arrive at the factory.
“There is no such thing as a 100 percent American vehicle,” Drury said. “There is so much complexity, even though it is a seemingly simple thing.”
Component rates could increase by $600 to $2,500 per vehicle for parts from Mexico, Canada and China, according to estimates in a Wells Fargo analyst note. Prices for vehicles assembled in Mexico and Canada – which make up about 23% of vehicles sold in the U.S. – could rise from $1,750 to $10,000.
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Experts say if tariffs go into effect, the sticker price drivers pay at the dealership will eventually increase. However, car manufacturers and sellers may also bear some of the costs.
“The costs will be spread across all stakeholders: automakers, dealers and consumers,” said Erin Keating, executive analyst at Cox Automotive. “No company will pass on all of these expenses directly to its consumers.”
Here's what you need to know.
Why cars may be subject to higher tariffs than other goods
The automotive supply chain is unique in that some components move back and forth across international borders during construction and assembly, experts say.
“People don't really know where their vehicle is made and how it's put together with parts from all over the world,” Drury said.
Take the steering wheel for example. Electronic sensors or other parts mounted in the steering wheel come to the United States for assembly from countries such as Germany, Drury said. The steering wheel is then shipped to Mexico to be stitched and then returned to the U.S. to be installed in the vehicle.
Given the supply chain, “more and more tariffs could be imposed on vehicles,” Keating said.
Experts say that if tariffs raise the cost of production, automakers cannot risk handing over the entire card to buyers.
Automakers and dealers may have to “bear some of the burden,” Drury said. “If you look at how expensive vehicles can get these fares, there is no way they can carry that many (cars).”
There's some silver lining, though – many of the cars that will hit the lot in early 2025 have already been assembled or are currently in production, which will further boost next year's supply, Keating said.
What car buyers can expect in 2025
According to experts, car buyers in 2025 are unlikely to see prices that take into account the new tariffs. Base prices will be 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 USD 48,724, which was 1.5% higher than a year earlier, for Kelley Blue Book data.
While the average price is higher than pre-pandemic levels, “the good news is that it is relatively stable. We don't hesitate anywhere,” Keating said.
As of December, the average interest rate on car loans for new cars is 9.01%, and the average interest rate on loans for used vehicles is 13.76%. for Cox Automotive. Average rates for both types of loans they are downstairs by about a full percentage point from a 24-year high earlier this year.
“We expect consumers may see even lower rates in the spring, creating the most normal and favorable shopping environment since 2019.” – Jonathan Smoke, chief economist at Cox Automotive, he wrote in the report.
For now, experts are optimistic about the automotive market next year as inventories grow and deals can be struck.
“Tariffs or no tariffs, there will be more incentives,” Drury said.