American car buyers are soon to experience a huge price increase. President Donald Trump has imposed a 25% tariff on foreign cars and car components. The tariff will be implemented on April 3, 2025. Car prices will increase by thousands of dollars due to this. The rise will come sooner than anticipated.
Why Car Prices Will Rise
The tariff will apply to all imported cars and auto parts. This means both imported vehicles and American-made cars will be affected. No car is 100% American-made. Every vehicle produced in the U.S. contains a significant percentage of foreign parts. On average, only about 40% to 50% of a car’s components are made in America. This means even cars built domestically will see increased costs.
The Impact on Car Buyers
Buyers will feel the price increase very quickly. The cost boost from tariffs will be transmitted to consumers. Automakers may not raise their listed prices immediately. But they have other options for recouping costs.
One of the tactics is to pull away desirable incentives. Buyers of cars frequently receive discounted interest financing offers from carmakers. Removing these options will make cars much more expensive. For example, if a manufacturer pulls a 1.9% financing option, the true cost of the car can rise by $6,000 to $7,000.
Dealers Will Adjust Prices Quickly
The majority of car dealers are autonomous entrepreneurs. They buy the cars at wholesale and price them as they see fit for the public. Once they realize the next shipment is going to cost more, they will increase the price on what they already have on hand. This results in the cars that are already on the lot becoming more costly overnight.
A Shortage of Cars Could Make It Even More Difficult
Automobile manufacturers is likely to cut down the production due to the tariff impact. If production goes down, supply will fall. When there are fewer cars on the market, prices will increase even further.
This is just like the 2021 chip shortage. This crisis led to a significant slowing down of automobile manufacturing. New vehicle prices went up by 17% within a year. Prices of used cars went through the roof, rising by 32%. These new tariffs can do the same thing.
Experts in the industry predict that tariff will cut car manufacturing by 20,000 cars a day. That would amount to a 30% decrease in overall North American car production. If so, prices will increase even higher.
The Reality of Higher Costs
Trump argued that the tariffs will cause the price of cars to drop as companies will be incentivized to produce more within the U.S. However, experts largely do not share the same views. They project that the reverse will occur. It will be more expensive to produce cars by thousands of dollars for each. Projections estimate $3,500 to $12,000 for each car. The effect will differ depending on the make and model of the car as well as the amount of foreign-made parts that are used.
How Buyers Can Prepare
Automotive buyers who are looking to buy in the near future must move quickly. Prices are likely to go up in weeks. Those looking to obtain financing should do so with low-interest loans before they are gone. Buyers can also opt to buy second-hand vehicles before demand drives prices up.
For those who can afford to wait, it might be advisable to wait. If the automakers are able to reprice or if tariffs are lowered, prices are likely to stabilize in the long run. For the moment, though, buyers need to prepare themselves for a tough market.
Conclusion
Trump’s tariff are set to disrupt the auto business. Car prices will jump by thousands of dollars. Dealers will immediately jack up prices, even before new shipments come in. A possible decline in production will only make it worse. Consumers need to get ready for paying more. Whether they purchase now or in the future, these tariffs will affect every car purchaser in America.
