How New Auto Tariffs Will Hit Consumers and the Industry

The automotive industry is bracing for major turbulence following President Donald Trump’s announcement of a 25% tariff on imported cars and auto parts. While the policy is intended to encourage domestic production, industry experts warn that the immediate impact will be a sharp rise in vehicle prices, fewer model choices, and the potential loss of affordable car options for first-time buyers.

Automakers are left with few choices other than passing these increased costs onto consumers. With tight profit margins, car manufacturers are likely to increase prices, reduce features on vehicles to cut costs, or even discontinue some models entirely. For many buyers, this means fewer affordable options and higher price tags across the board. According to Cox Automotive, tariffs could add $3,000 to the cost of a U.S.-made vehicle and as much as $6,000 to those produced in Canada or Mexico. S&P Global Mobility forecasts that these added costs will reduce annual U.S. vehicle sales from 16 million in 2024 to a range of 14.5 to 15 million in the coming years.

The impact won’t just be felt at the dealership. Higher new car prices will drive more consumers into the used car market, causing pre-owned vehicle prices to climb as well. Additionally, since repair costs for vehicles rely on imported parts, maintenance expenses are expected to rise, further straining consumers’ wallets. Insurance rates will likely follow suit, as the increased cost of vehicle replacement and repairs will be factored into policy pricing. Experts predict that drivers who aren’t even in the market for a new car may still feel the financial effects through these secondary consequences.

With the tariffs set to take effect on April 3, a sense of urgency has emerged among prospective car buyers. Many are rushing to purchase vehicles before prices increase, causing a temporary surge in demand that could drive costs up even faster. Dealers, who currently have about 90 days' worth of inventory, may not be able to maintain current prices once their stock is depleted. The uncertainty surrounding how long the tariffs will last has also left automakers at a crossroads—should they restructure production and supply chains to accommodate the new costs, or wait it out in hopes of a policy reversal?

This decision carries high stakes. If automakers choose to relocate production to the U.S., it could take years and billions of dollars to execute, potentially leaving them at a disadvantage if tariffs are lifted in the near future. On the other hand, those who choose to absorb some of the costs or implement temporary price adjustments could face financial strain that threatens their long-term profitability. For newer players like INEOS Automotive, which heavily relies on U.S. sales, the situation presents an even greater challenge. The company’s CEO, Lynn Calder, acknowledged that there’s no way to pass on the full 25% increase to consumers, leading to a shared financial burden among the manufacturer, dealers, and buyers alike.

Ultimately, these tariffs represent a seismic shift for the auto industry and consumers alike. While some argue that the long-term benefits of increased domestic production outweigh the short-term pains, the immediate reality is clear: buying and owning a car in America is about to get significantly more expensive. Whether through higher sticker prices, rising insurance premiums, or increased maintenance costs, the effects of these tariffs will ripple across the entire market. For those considering a new vehicle purchase, the message from industry experts is consistent—act sooner rather than later, as waiting could cost thousands of dollars more in the near future.