The Trump administration has put 25% tariffs on cars made outside the United States. That includes parts used to make vehicles. While the figure will vary, estimates are that the price of the average new car, which is $50,000, will go up $6,000 as a result of the decision.
The effect of the tariffs could hit car prices quickly. According to The New York Times, “Nearly half of all vehicles sold in the United States are imported, as well as nearly 60 percent of the parts in vehicles assembled in the United States.”
The figure will likely be different from brand to brand. The math is complex. It is unclear how many assembled vehicles large car companies have in U.S. inventory. The average car dealer usually has an inventory of vehicles that will last 60 days. The term for this is “days on a lot.” Some BMW and GMC products sell slowly, meaning they will have fewer inventory shortages on paper. Toyota and Lexus models sell quickly.
The shortages may also be an opening for dealers to charge higher prices on shrinking inventory. Demand for new cars, in general, should stay high as inventory decreases. As was the case during the COVID-19 pandemic, when supply chains lowered national new car inventory, dealers pushed what they sold cars for above MSRP levels, even though manufacturers warned them not to.
The tariffs will cause inflation to rise. Just short of 16 million new cars were sold in the United States last year. On the other hand, people may skip getting a new car completely. Drivers are holding cars longer. Last year, the average age of a car on the road was 12.6 years, which is an all-time high.
High interest rates worsen the new car price problem. Bank of America loan rates are 5.5% to higher.
Over time, how long people keep their cars will help determine how fast new car prices rise because of tariffs.
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