Automakers are facing several strategic choices in response to President Trump’s decision to impose a 25% tariff on imported cars and parts, all of which are likely to drive up car prices, according to analysts.
Manufacturers might consider shifting production from countries like Mexico to the U.S. or ramping up the volume of vehicles already manufactured domestically. Alternatively, they could reduce the range of imported models they sell, especially those with slimmer profit margins.
No matter the route manufacturers choose, consumers should brace themselves for steeper prices on both new and used vehicles. Depending on the model, price hikes could range from about $3,000 for American-made vehicles to upwards of $10,000 for imported ones.
These estimates don’t include potential additional tariffs that Trump has hinted at, aimed at penalizing countries that impose tariffs on U.S. exports. He’s also warned of further hikes if trading partners like Canada and the EU retaliate, potentially escalating to a full-blown trade war.
Michael Cusumano, a management professor at the MIT Sloan School of Management, noted, “It’s going to be disruptive and expensive for American consumers for several years.” Auto industry leaders who dismissed Trump’s tariffs as mere negotiation leverage were proven wrong when he declared their permanence during a White House announcement.
Trump justified the tariffs as a strategy to reinvigorate domestic car manufacturing. The United Automobile Workers union echoed this sentiment, suggesting that automakers could reopen shuttered plants in places like Lordstown, Ohio, or increase output in areas like Warren, Michigan, where auto workers have faced layoffs.
“We’re calling on manufacturers like the Big Three and others, such as Volkswagen, to bring good union jobs back to the U.S.,” stated U.A.W. President Shawn Fain, naming General Motors, Ford, and Stellantis.
However, moving factories is an expensive, lengthy process. Establishing a new assembly line to produce quality vehicles can take years, not to mention the complexity of relocating global supply chains involving dozens of countries.
While tariffs might prompt companies to consider the U.S. over Mexico or Canada as a production site, such a decision motivated by tariffs rather than efficiency could drive up costs for consumers.
There’s also an air of uncertainty hanging over such investments, worth hundreds of millions. Kevin Williams, a senior director at Clark Hill specializing in trade law, explains skeptically, “Clients often ask, ‘How do we justify this expense with the lack of guarantee this is a long-term measure?’ Investments could fall flat if future policy changes reverse current tariffs.”
To counteract the cost of tariffs, automakers—many of which refrained from commenting—are likely to avoid burdening consumers with the full price impact. Excessive price hikes risk plummeting sales, threatening a vicious cycle of declining revenues and escalating costs. Economists fear these trade disruptions could precipitate a recession.
Some auto companies have preemptively built up inventories of parts and vehicles prior to the tariffs’ implementation, though this will only temporarily mitigate price increases.
“Tariffs mean higher car prices, leading to fewer purchases,” outlined W.C. Benton from Ohio State University. Already, the high cost of new cars, averaging over $48,000 according to Cox Automotive, is out of reach for many. The price of used cars is expected to rise similarly as more consumers explore affordable alternatives.
Most automakers, operating on slim profit margins, have little cushion for additional expenses. For instance, General Motors reported a net sales profit margin of just 3.2% last year. Consumers will likely bear much of the tariff burden. According to iSeeCars estimates, tariffs could add hefty increases to vehicle prices: $15,000 for a Ram 1500 pickup, $12,000 for a Toyota Tacoma, $9,000 for a Subaru Forester SUV, and $6,000 for a Nissan Sentra sedan.
Some automakers like Ferrari, which markets Italian sports cars for hundreds of thousands, have already announced price increases up to 10% due to the tariffs. Automakers may also cut certain less profitable small models, shifting focus to larger, pricier domestically-produced vehicles. Despite having sizable U.S. manufacturing operations, even foreign brands like Mercedes, BMW, Volkswagen, Honda, and Toyota include foreign-made parts in their vehicles, meaning no model is tariff-proof.
“There’s no truly American car,” commented Simon Geale, EVP at Proxima, a procurement consulting firm.
Some manufacturers may be reluctant to make sweeping operational changes, speculating that the tariffs’ fallout could force a policy reversal.
“There’s going to be significant pushback from American consumers,” said Cusumano of MIT. “Hopefully, it compels some sort of action.”
Reporting by Ana Swanson contributed to this analysis.
