The “Day of Liberation” has arrived. Get ready to be free from affordable vehicle prices.
As promised, a 25% tariff on President Donald Trump’s imported vehicles came into effect Thursday, bringing the automotive industry into full panic mode. While some analysts are forecasting a price hike between $5,000 and $10,000 for a new car from the gate, others have struggled to wrap their heads around Trump’s automotive rate logic. This was a nuclear-level threat to the already volatile automotive industry and was barely mitigated.
Trump’s argument is relatively simple when it’s pointless: Don’t you like tariffs? Just buy an American car. The only problem is that it doesn’t happen. Even vehicles made in the US rely on complex supply chains that cross borders and pass through multiple countries. The average car contains around 30,000 individual parts. Even cars have earned 40-50% of their parts in the country, according to Dan Ives, world head of technology research at financial services firm Wedbush Securities.
“Taxes are a catastrophe of epic proportions for the automotive industry and for the US consumers, as the concept of a US-made car with all the US parts is a fictional story of a fairy tale,” Ives wrote in a note to his client on Thursday. “The more people talk about it from the automotive industry around the world, the more this tariff/US policy will cause pure disruption in the global automotive industry, increasing the price of a typical car to US consumers from 5k to $10,000.”
“This tariff/US policy has been revealed to cause pure disruption in the global automotive industry.”
Other companies were forecasting even higher prices as new tariffs began to be enforced. Anderson Economic Group concluded that tariffs could increase manufacturing costs of more than $10,000 per vehicle, depending on the vehicle model. The battery-electric crossover SUV can see the biggest spikes of $12,000.
This effect could become even more pronounced at the bottom edge of the market, with many of GM, Ford, Kia and Hyundai’s most affordable vehicles being produced outside the US. Market researcher Edmunds said affordability is already a major problem for car buyers, with an average deal for a new car at $48,118 in January.
There are only 27 vehicles under $30,000. Four have already been cancelled, including the Chevrolet Malibu and Nissan Versa. Many of these models are sourced from Mexico, Japan and Korea. Last year, these models accounted for 13% of all vehicles sold in the US.
According to Erin Keating, executive analyst at Cox Automotive, the smash tariffs on these vehicles “dramatically” change the dynamics when they arrive in the US, boosting sticker prices averaged $5,300.
“This is tough news for an industry that is already staring at the issue of affordability,” Keating added in a statement.
For decades, ownership of cars has been a hallmark of American dreams. We built a community around car ownership, squeezed through passages, reduced pedestrian space, and gave way to bigger, larger vehicles. For most people in the US, owning a car is not an option. You need to participate in your daily life.
“This is tough news for an industry that is already staring at the issue of affordability.”
Consumers were already facing rising costs when funding new vehicles before tariffs hit. One in five new car buyers have received seven years of loans to fund new car purchase loans, Edmunds said. And the increasing number of people with car loans is more than the value of the vehicle.
“Even when things are relatively flat, the extended terms and ongoing reliance on high payments reveal just how challenging a car can be,” says Jessica Caldwell, Edmunds’ Head of Insights. “And now, with car rates officially in effect today, there’s a risk that they’ll add fuel to the fire, causing confusion that could push the vehicle even further out of reach for many shoppers.”
The Trump administration is considering other bailouts for car buyers. The White House said it is seeking tax credits to encourage the purchase of US-made vehicles and pursue deregulation to reduce costs across the industry. However, the outcome is uncertain.
With prices expected to skyrocket, many people who were considering buying a car are busy with dealers and are trying to take advantage of pre-customer prices. Consumer experts advise against panic shopping, but of course most people don’t think rationally while watching the news due to growing anxiety.
“You’ll never hurry and make a rash decision that you might regret,” says Jake Fisher, senior director of the automated testing center for consumer reports. “Even if tariffs are here, the value of your trade-in will also increase in the short term.”
“You never rush and make a rash decision that you might regret.”
Some automakers are using the total number of new and used vehicles sold by dealers to provide short-term incentives for panic shoppers. Ford offers employee discounts to all shoppers through June 2 on most models, including the Mustang Mach-E and Maverick, which are being built in Mexico, Reuters reports. Cox said Ford had more than four months of stock in February, surpassing the industry average by nearly three months.
Hyundai’s response was to announce a $21 billion investment in the US to stem the impact of tariffs. And others are taking a more dramatic approach. Stellantis said it has temporarily laid out 900 workers at five U.S. factories today, and has suspended production at assembly plants in Canada and Mexico.
Even Tesla, run by billionaire Best Buddy Elon Musk, is exposed to these new tariffs. The company assembles vehicles in the United States, but 20-25% of the parts are sourced from Mexico, according to a list of origins of the automobile parts issued by the National Highway Traffic Safety Administration.
Tariffs could lead to more automakers trying to negotiate deals or exemptions with the administration. And ultimately, this is probably what Trump wants. He is the most important person in the room, and is at the heart of the chaos he created.
