Consulting firm AlixPartners has completed a report on the effects of tariffs on the car industry. It assumes that car companies will pass 80% of tariff costs to buyers. The exact increase is expected to be $1,760. America’s two largest car manufacturers will bear the brunt of the financial costs. General Motors Co. (NYSE: GM | GM Price Prediction) has 17% of U.S. car sales, while Ford Motor Co. (NYSE: F) has 13%.
The report also forecasts that the increases will cut car sales by a million units over the next three years. Bloomberg says that GM has reported its expectations of the impact of tariffs will be $5 billion in the next year. Ford expects the impact to be $2.5 billion.
Ford and GM are already under siege. Although sales have been steady for the past several months, tariffs have not started to change most prices. In fact, sales may be up in the short term as people race to buy cars before the price increases.
Ford and GM have had a string of new, strong competition. Among these are the rise of South Korea’s Hyundai and Kia. Combined, they have a market share of 11%, which is ahead of Honda’s 9%.
Each of the Big Two also has strong competition in electric vehicles (EVs), particularly from Tesla Inc. (NASDAQ: TSLA). Ford and GM have put tens of billions of dollars into EVs. Also, each has started to cut back because of the failure of their launches. Tesla continues to have just below 50% of U.S. EV sales, despite a huge image problem associated with CEO Elon Musk’s relationship with the Trump administration.
The tariffs also add to a recent increase in costs triggered by UAW contracts. Ford put the additional costs at $8.8 billion from when the contract went into force to 2028.
Finally, Americans may simply keep their cars while they watch how long the tariff-driven prices last. The average age of cars in the United States is 12.3 years, and that number has grown steadily.
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