Analysis for the auto industry are forecasting prices at dealerships rising just as the recovery from the pandemic had begun to take after President Donald Trump announced a 25 percent tariff on cars built outside of the U.S.
This is the third time the Trump Administration has stated a tariff effecting the automotive industry will go into effect, with Trump stating the tariffs would be “permanent” and nothing that would prompt the removal of the import taxes during a signing ceremony in the Oval Office March 26.
“Automakers will likely face increased costs throughout the supply chain, and those costs could be passed along to consumers unless manufacturers find innovative ways to absorb or offset them, including the possibility of dipping into their profit margins,” said Jessica Caldwell, Edmunds’ head of insights. “With the tariff set at a notable 25 percent, it’s reasonable to expect that vehicle prices will rise, which presents an added challenge to an industry that is already grappling with ongoing affordability concerns.”
Trump Comments
President Trump did little to address those concerns over the weekend when he said he “couldn’t care less” if car prices rise due to the 25 percent tariffs his administration is set to put into effect this week, dismissing the concerns from foreign automakers and dealers about the cost of a car rising.
“I couldn’t care less if they raise prices, because people are going to start buying American-made cars,” said the President. “The message is congratulations, if you make your car in the United States, you’re going to make a lot of money. If you don’t, you’re going to have to probably come to the United States, because if you make your car in the United States, there is no tariff.”
Affordability Concerns
Affordability is a key issue for Americans currently grappling with higher costs across the economy. Edmunds vehicle pricing data from February 2025 revealed the average transaction price (ATP) for new vehicles was $47,373 and the average MSRP for new vehicles was $49,350, making the average discount for new vehicles $1,977. The ATP for used vehicles was $25,005.
“Incentives have only recently returned in a meaningful way as inventory has rebounded, and they have contributed to more consistent vehicle sales over the past year,” said Caldwell. “With added cost pressures, automakers may pull back on incentives, which could make it more difficult for some consumers to find affordable options.
Thomas King, president of the data and analytics division at J.D. Power, noted the prospect of tariffs had already affected the industry. In addition to the boost in March sales, anticipated increases in manufacturer and dealer discounts have not materialized despite inventory on dealers lots rising.
“Although the magnitude of these effects is currently modest, they do present a preview of potential disruption as manufacturers, dealers and consumers prepare for uncertainty in the coming weeks and months,” said King.
Effect on Car Prices
Analysis have estimated the 25 percent duty on a $25,000 vehicle from Canada or Mexico would add $6,250 to its cost, most expected to be pushed on the consumer. Wells Fargo had previously estimated the tariffs would cost the Detroit Big 3 automaker billions of dollars a year. The firm estimates 25 percent tariffs on General Motors, Ford and Stellantis would collectively be $56 billion. The tariff effect will not just be on new-vehicle prices.
“Many vehicle parts are sourced globally, which would increase repair costs for car owners, and reconditioning costs for dealers,” explained Caldwell. “Insurance premiums will also likely increase as any accidents involving new parts will see increased costs as well.”
While highlighting that tariffs have the potential to affect manufacturers differently—based on their overall manufacturing footprint—they can affect models within a manufacturer’s portfolio based on production location.
“The likelihood of significant near-term disruption is high for the entire automotive ecosystem from suppliers and manufacturers to retailers and consumers,” said King.
Issues in the Used Car Market
With overall affordability a top concern for Americans more car shoppers have looked to the used market for relief. But they have found limited availability, especially for near-new models due to the sharp drop-off in lease volume during the pandemic.
“This combination of factors is likely to drive up used car prices again,” said Caldwell. “Dealers will need to be particularly mindful when evaluating trade-ins and managing inventory.”
What is most troublesome to those in the industry is that many of the key metrics for the auto industry were returning to long-established norms that were disrupted by the pandemic. New-vehicle inventory had mostly recovered from supply-chain shortages, sales volumes and incentives were both increasing and new vehicle price inflation was relatively tame in 2024.
Cox Lowers Yearly Sales Forecast
March is an important month for the new-vehicle market as it kicks off the spring selling season after slow winter months. But the economic concerns led Cox Automotive to lower its full-year new-vehicle sales forecast to 15.6 million, down from the original forecast of 16.3 million.
“It is not immediately clear when the tariff will be imposed on vehicles and inflating the cost of vehicles in inventory, but consumers likely have a narrow window to buy new or used vehicles before prices increase by 10 percent or more,” said Cox’s chief economist Jonathan Smoke. “After a near-term surge in buying, we expect sales to fall, new and used prices to increase, and some models to be eliminated. Moreover, with 25 percent increases in the cost of parts, inflation would surge in maintenance and repair and insurance, which vehicle owners are already struggling to handle.”
Continued affordability challenges, economic uncertainty impacting consumer confidence, and the potential for higher inflation due to new tariffs were all factors cited for holding back new-vehicle sales in 2025.
“What March sales will likely confirm is that the post-election ‘Trump bump’ that our market enjoyed at the end of last year is likely fading,” said Charlie Chesbrough, senior economist at Cox Automotive. “[There is] concern among consumers regarding the future of tariffs and the economy—a new economic uncertainty—is holding back the market.”
Short Term Pain for Long Term Gain
There may be long-term benefits for the goals of tariffs in regards to the automotive indsutry, but many consumers are focused on the near-term as there will be pressure to increase vehicle prices, according to King.
In the long term, Caldwell opined that tariffs could encourage increased investment in U.S.-based manufacturing like the recent announcement by Hyundai.
“Over time, this may contribute to a more resilient and locally rooted auto industry,” she said. “However, those potential benefits will take time to materialize. For consumers navigating higher prices in the short term, the promise of future gains may feel distant—at least for now.”
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