How Tariffs Are Impacting Car Prices and Your Next Purchase

The automotive market is bracing for significant changes as President Donald Trump’s tariffs on steel, aluminum, and imports from Mexico and Canada take effect. These tariffs, which include a 25% levy on steel and aluminum and a month-long reprieve for U.S. automakers from tariffs on imports from Mexico and Canada set to expire on April 2, are expected to drive up costs for both new and used vehicles in the coming weeks. Experts warn that waiting for a bargain on your next car purchase or major repair may not be a smart strategy, as prices are likely to rise due to these tariffs. Ivan Drury, director of insights at Edmunds, emphasized that waiting three months won’t guarantee better discounts, stating, “That’s guaranteed.” The urgency to act now is heightened by the fact that the auto market is showing signs of stabilizing, with new vehicle costs down 0.3% last month compared to the previous year, and used car and truck prices up 0.8% over the same period—both far below the 2.8% annual inflation rate overall. However, analysts caution that these trends are unlikely to last, as the impact of tariffs begins to take hold.

The Expected Impact of Tariffs on Car Prices

The Anderson Economic Group, a consultancy representing automakers and dealers, predicts that tariffs could drive up auto costs by $4,000 to as much as $12,500 depending on the vehicle, engine type, and country of origin. Patrick Anderson, the firm’s CEO and founder, warned that these tariffs could undermine one of the most important elements of the U.S. economy—its ability to manufacture products domestically using parts from Canada and Mexico. He expressed concerns that the tariffs could cause more damage than benefit, though it’s already clear that they’ve rattled consumers. The impact isn’t limited to U.S. car brands like Ford, General Motors, and Stellantis; foreign automakers such as Honda, Toyota, Audi, and BMW, which have extensive production in North America, could also raise prices. This broad-based impact means that consumers across the board may feel the pinch, regardless of the brand or origin of the vehicle they’re considering.

The Ripple Effects on Car Production and Availability

The tariffs could also lead to a crunch in the availability of new North American-built vehicles. A recent forecast from S&P Global Mobility predicted that regional production could drop by as much as 20,000 units per day within a week of the Canada and Mexico tariffs taking effect. Stephanie Brinley, an automotive analyst at S&P Global Mobility, explained that automakers will need to find a balance between the vehicle content most appealing to consumers and the higher costs associated with tariffs. She emphasized that the question for automakers is how to protect margins while navigating these new challenges. As production Adjustments are made, consumers may find that the variety of vehicles available becomes more limited, leading to a more competitive and potentially stressful car-buying experience.

The Shift in Consumer Behavior and Stress Levels

Many drivers are already feeling the stress of potential car purchases, with the share of consumers who expect to be rejected for auto loans hitting 33.5% in the latest New York Federal Reserve survey—the highest level in its 12-year history. This anxiety is compounded by the fact that used vehicle prices are also expected to rise, as auto lessees wary of purchasing tariff-inflated vehicles may hold on to their leased cars for longer. While this could boost the values of well-maintained vehicles already on the road, it would also tighten used vehicle inventories, potentially recreating the lopsided pandemic-era market. Ivan Drury noted that incentives like cash-back offers could disappear overnight, as manufacturers and dealerships trim rebates and financing promotions to offset higher costs. He and other analysts warn that the days of generous perks for prospective buyers may soon be over.

Navigating the New Landscape: Advice for Consumers

Given the broad-based nature of the tariffs and their potential to create a chill among automakers, industry analysts say there’s not much U.S. consumers can do to mitigate the ripple effects. However, there are steps buyers can take to make informed decisions. Ivan Drury suggested that consumers keep on hand the American Automobile Labeling Act report, a document published annually by the Transportation Department that lists every vehicle model along with the origins of its composition. This report could provide some guidance, as Drury pointed out that the badge on the hood doesn’t always match expectations about where the vehicle was made. He emphasized that no vehicle is entirely manufactured from the ground up in the United States, and understanding the sourcing of components could help consumers make more informed choices. Stephanie Brinley also cautioned against trying to “game” tariffs by compromising on what they actually need. While tariffs are expected to fuel price hikes across the auto market, buying a car that doesn’t fit your lifestyle or needs could end up costing more in the long run. She advised consumers to adjust their budgets if necessary, but to “shop as you always have” and prioritize finding a vehicle that truly meets their needs.

The Road Ahead: Taking Control of Your Car Purchase

In conclusion, the tariffs imposed on steel, aluminum, and imports from Mexico and Canada are set to drive up costs across the automotive industry, impacting both new and used vehicles. While the auto market is currently showing signs of stabilization, analysts warn that these tariffs could disrupt the balance and lead to price hikes, reduced availability, and fewer incentives for buyers. As consumers navigate this challenging landscape, it’s important to stay informed, understand where your vehicle is made, and avoid compromising on your needs in an attempt to save money. While there’s no way to completely avoid the impact of these tariffs, taking a proactive and informed approach to your car purchase can help you make the best decision for your budget and lifestyle. As the situation continues to evolve, staying vigilant and being prepared for changes in the market will be key to securing a fair deal.