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President-elect Donald Trump has been vocal about potentially increase fees on imported goodswhich experts say could increase car prices.
Trump has talked about implementing a supplement 10% tariff on imported Chinese goodsand also add tariffs of 25% on all products from Mexico and Canada. Hon FridayTrump has told the European Union it must reduce its trade gap with the United States to buy oil and gas, or it could face tariffs.
Tariffs are taxes on imported goods, paid by American companies that import those goods.
Tariffs have the potential to disproportionately affect car prices because the materials used to assemble a vehicle 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 insights at Edmunds.
“There is no such thing as a 100% American vehicle,” Drury said. “There’s so much complexity, even though it’s a seemingly simple thing.”
Component fees could add $600 to $2,500 per vehicle on parts from Mexico, Canada and China, according to estimates in a Wells Fargo analyst note. Prices for vehicles assembled in Mexico and Canada — which account for about 23% of vehicles sold in the United States — could rise $1,750 to $10,000.
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If the fees are enacted, the sticker price drivers pay at the dealership will eventually increase, experts say. But car manufacturers and dealers may also have to bear some of the costs.
“The cost will spread across all stakeholders: motorists, dealers and consumers,” said Erin Keating, executive analyst at Cox Automotive. “No company is going to dump all the expenses directly on their consumers.”
Here’s what you need to know.
Because cars can incur more fees than other goods
The automotive sector’s supply chain is unique because some parts move back and forth across international borders as the part is built and assembled, experts say.
“People don’t really know where their vehicle is built and how it’s assembled from parts all over the globe,” Drury said.
Take a flyer, for example. The electronic sensors or other parts that go into the steering wheel come to the United States for assembly from countries like Germany, Drury said. The steering wheel is then sent to Mexico for sewing, only to return to the United States to be installed in the vehicle.
The vehicles could have “increase plus fees applied” compared to other products, given the supply chain, Keating said.
If the tariffs add to the cost of manufacturing, automakers can’t risk passing the entire tab to the buyer, experts say.
Automakers and dealers could “bear some of the burden,” Drury said. “If you look at how expensive vehicles could get with these fees, there is no way they will be able to move as much. [cars].”
There is, however, a silver lining – many cars that will be on the lots at the beginning of 2025 have already been assembled or are currently being made, adding to the offer available for next year, Keating has said
What car buyers can expect in 2025
Car buyers in 2025 are unlikely to see prices that factor in new tariffs, experts say. Base prices will be roughly the same, and retailers will likely offer more incentives to attract buyers next year.
The average transaction price for new cars is expected to hover between $47,000 and $48,000, according to Keating. In November, the average price was $48,724, 1.5% higher than a year earlier, in order Data from Kelley Blue Book.
While the average price is higher than pre-pandemic levels, “the good news is that it is relatively stable. We are not vacillating all over the place,” said Keating.
In December, the average auto loan rates for new cars are at 9.01% while loan costs for used vehicles are at 13.76%, in order Cox Automotive. Average rates for both types of loans i’m down about a full percentage point from a 24-year high earlier this year.
“We expect consumers to see even lower rates starting in the spring, creating the most normal and favorable buying environment since 2019,” Jonathan Smoke, chief economist at Cox Automotive, he wrote in the report.
For now, experts are optimistic for the auto market next year, as inventory and business opportunities grow.
“Tariffs or no tariffs, there will be more incentives,” Drury said.
