Tariffs Trigger Auto Market Turmoil, Prices Surge | Image Source: www.cnbc.com
DETROIT, April 1, 2025 – The U.S. automotive industry is in a storm. With the Trump administration’s new 25% tariffs on imported vehicles now in effect, and the additional tariffs on imported car parts fixed for May 3, the cost of buying a new or used car in America is set at a sharp increase. According to Cox Automotive, these rates will not only increase vehicle prices through the card, but also reduce supply, change car manufacturers’ strategies and consumer behaviour. The implications? A volatile market that looks like the first days of a pandemic, just this time, is political, not a pandemic, pulling strings.
President Donald Trump’s administration argues that tariffs will encourage car manufacturers to return to the United States to boost domestic production. But according to Chief Economist Jonathan Smoke, short-term effects are more disruptive than promising. He warned during a virtual information session that the industry is facing a cascade of price increases and model elimination, pointing out that “we hope to see a drop in discounts and then accelerate price increases as prices and supply have passed.”
As it stands, imported vehicles could see prices jump by $6,000, while even domestically assembled cars may increase by $3,600 due to tariffs on imported parts.
What impact will tariffs have on new car prices?
In clear terms: an important one. Even cars built in the United States depend to a large extent on foreign parts. Automatic analyst Mel Yu told Reuters that between 40% and 80% of U.S. cars are made up of imported components: engines, transmissions, microchips and more. This makes the next 3 May tariffs on particularly powerful parts. According to Edmunds, prices for new cars, which were already about $50,000 on average, could increase further from $3,000 to $6,000 in short order. For luxury vehicles, the peak could be close to 10%.
While manufacturers like Ferrari and BMW try to absorb some of these costs, at least temporarily, others simply pass them on to consumers. Ford, for example, has launched a temporary employee pricing initiative to help offset the shock of stickers, while Jaguar Land Rover has completely stopped shipments to reassess its US strategy. Hyundai, on the other hand, promised not to raise prices until June, in order to maintain goodwill among American buyers. But as the months progress, even this cannot be sustainable.
How do consumers react?
The reaction was quick. Automated dealers across the country report an increase in traffic, while buyers rush to buy vehicles before further price increases. According to Self-pacific, nearly 18% of buyers increased their car purchases in March precisely to meet the tariff deadline. The effect is tangible. Hyundai reported its second month of sales, while Toyota noticed a similar success at the end of March. As Luther Auto Group’s Jim Haertzen explained, ”We sold over 100 cars in the last three days of the month. We usually sell half of this.”
Buyers, wary of an uncertain future, are trying to lock in prices now, fearing a repeat of the 2021 chip shortage surge that saw prices skyrocket well above sticker value.
Will used car prices also rise?
Yeah, and maybe more than expected. Although used vehicles are not directly subject to tariffs, they are closely linked to the dynamics of the new car market. As prices increase, demand naturally shifts to the second-hand market, where inventory is already tight. Cox Automotive revised its wholesale vehicle price forecasts from 1.4% to 2.8% by 2025. The used Manheim Value Index vehicle confirms a steady increase, and the average price on the used vehicle list is already about $25,000.
Ryan Rohrman, CEO of Rohrman Automotive Group, described the situation as being already seen from the pandemic period, noting that “we look at our wholesale car account up, but the problem is that we are not able to get as many cars from the used car side as we are at retail, and that pushes us to go to auction. And it’s pushing the value of cars in the block up, as he did during Covid. It’s scary.”
Scarcity and increased demand are combining to push prices higher across the board.
How do car manufacturers adapt to the New Landscape?
The responses of car manufacturers varied between strategic price freezes and production interruptions. Stellantis, Jeep and Dodge’s parent company, temporarily discontinued operations in certain plants in Mexico and Canada, resulting in 900 layoffs in Michigan and Indiana. Meanwhile, Nissan and Toyota chose not to increase prices, but to reassess their supply chains. Ford, taking advantage of a marketing opportunity, launched its “From America to America” campaign, which includes significant price reductions in some models.
But this period of adjustment is shaded by uncertainty. According to a report by the NPR, Jaguar Land Rover suspended shipments of its British vehicles, while BMW announced that it would absorb the additional costs of tariffs on cars produced in Mexico until May. The rules of the game are all but one level, and car manufacturers try to balance the political perspective, financial tension and customer loyalty at the same time.
Why is the complexity of the supply chain important?
Because the vast majority of modern cars are of global origin. Even “made in the United States” vehicles often run with parts of Canada, Germany, South Korea and China. This entangled web means that no car manufacturer is immune to tariffs, even if the final assembly occurs on the side of the state. According to Jeff Schuster of GlobalData, ”Those imported directly will face a higher cost, which will lead to a shortage. When there is a shortage, it increases those prices.”
The result? A domino effect that raises prices not just for consumers but also for suppliers and dealerships caught in the middle.
They’re not just parties. Trump’s tariffs apply to entire categories – engineers, transmissions, exhaust systems – that account for 20 to 40% of the retail value of a car, according to Reuters. That’s why even U.S. cars face significant cost pressures. The idea of isolating the internal market is much more complex than it seems.
Could the whole political fire?
Maybe. According to the investigations cited by CNN, many voters do not believe that the Trump administration is doing enough to stop prices. The last time car prices rose – during the shortage of fact sheets of 2021 – it contributed to the wave of inflation that helped the Democrats to cost the elections of 2024. If prices are to rise again in 2025, Republicans can face a similar return vote, particularly from middle- and low-income Americans who trust affordable transportation.
Despite warnings from analysts and professional associations such as the Alliance for Automotive Innovation, Trump maintained a difficult position. Asked about the NBC if he was concerned about the price increase, he replied strongly: “I don’t care. I hope they will raise their prices, because if they do, people will buy American cars. We have a lot.”
Whether that optimism translates into real-world gains remains to be seen.
Industry experts remain sceptical. As John Bozzella, CEO of the Alliance, warned, “additional tariffs will increase costs for U.S. consumers (and) will reduce the total number of vehicles sold in the U.S….all this before creating a new manufacturing or job.”
In other words, the pain is immediate; the promised gain is uncertain.
Meanwhile, dealership stocks are decreasing. Prices are rising. And consumers boast about the impact.
The U.S. automotive market has already experienced turbulence, from the oil shocks of the 1970s to the financial fall of 2008 and the shortage of chips of 2021. In each case, the recovery was slow and uneven. This time, with the additional layer of geopolitical tension and electoral politics – year, the road to follow seems stronger than ever.
In the short term, buyers with the means to act quickly can find value before the total weight of the tariffs reaches. But for most Americans, especially those who trust used vehicles or seek to finance new vehicles, affordability could soon be out of reach. As the industry is eager to adapt and politicians hold their land, one thing remains clear: the price of a car in America is no longer just a matter of steel, rubber and painting, but also a matter of politics.
