Investing

Car Prices Could Go Up Another $3,000 - $10,000, and American's Can Barely Afford Them As Is

Austin Smith

Published: February 22, 2025 9:47 am

24/7 Wall St. Key Points:

• A proposed 25% tariff on Canadian and Mexican imports could raise car prices by $3,000 to $10,000, affecting not just General Motors Co. (NYSE: GM) and Ford Motor Co. (NYSE: F), but also Toyota Motor Corp. (NYSE: TM) and Honda Motor Co. Ltd. (NYSE: HMC).
• Higher vehicle costs, combined with already high interest rates on car loans, could lead more consumers to hold onto older cars instead of buying new ones.
• Automakers may eventually shift more production to the U.S., but such moves would take years and would not provide immediate relief from higher prices.
• A quick conversation with a financial advisor can help you unpack your savings, spending, and goals for your money. With SmartAsset’s free tool, you can connect with vetted financial advisors in minutes. (Sponsor)

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Transcript:

[00:00:04] Doug McIntyre: Lee, I just got a piece of analysis that shows that if there are 25 percent tariffs put on all Canadian and Mexican goods coming into the United States within 90 days. Car prices will go up between $3,000 and $10,000 for the sort of, you know, big pickups and closer to $3,000 for the smaller stuff. Now there’s, there’s this belief that GM and Ford are going to be the only people who get hurt.

[00:00:33] Doug McIntyre: But the fact of the matter is, is that most people who sell lots of cars in the United States manufacture those cars. or some parts of those cars in Canada and Mexico. So, you know, Honda, Toyota, BMW, you know, to me, you look at all the major public companies, car public companies, and you ask yourself about what’s going to happen to those stocks.

[00:00:59] Doug McIntyre: GM and Ford, good to look at, but there are a bunch of others that are publicly traded, particularly out of Japan. You should keep your eyes on.

[00:01:07] Lee Jackson: Yeah, I agree. But I would also submit to you that the Japanese are the shrewdest and have been for, I don’t know, when did the blow up? Late seventies. So many of their cars are built here.

[00:01:19] Lee Jackson: They don’t give a damn, frankly, I mean, within. 100 miles of me. I’m in Tupelo, Mississippi, the home of Elvis. There is a giant Toyota plant and there’s a giant Nissan plant. And so while I agree, it will hurt them, I don’t think they have near the problem that Ford and GM are going to have because they have so much built in Canada and so much built in Mexico.

[00:01:44] Doug McIntyre: Yeah. I, I don’t know enough about where the, you know, the parts mix for Toyota, but, it’s worth looking at. Certainly looking at GM, Ford, Toyota, TM on the NYSE, Honda, HMC on the NYSE. Worth having a look at those stocks and see whether or not most of them have come down to some extent on the anticipation of this, but I’d have a look at them.

[00:02:14] Doug McIntyre: It’s, you know, look at the, the four big publicly traded, uh, companies, they’re all on the NYSE and think about whether or not they could be hit car hard. Because if you go, if you have a three to $10,000 increase on car prices, which are already at records, the United States is 48,000. So throw another five on there.

[00:02:38] Doug McIntyre: Car loans are six or 7%. So unless it’s an EV, unless you get a 0 percent months on an EV that they can’t get rid of. But if you’ve got a $55,000 new car and that’s the average price. With six or 7% car loans on ’em, a lot of people are gonna hold onto their cars.

[00:03:02] Lee Jackson: Well, you’re talking a six, seven, $800 payment at that level.

[00:03:06] Lee Jackson: Yeah. You know, even if you get some favorable 2.9 or something like that, you’re still looking at a big, big payment. And that’s the kind of thing, especially if the economy gets a little dicey. Uh, a new car, especially if your car isn’t super old, is gonna be last on your wish list. And, um, it’ll be interesting to see because you know what the president wants.

[00:03:28] Lee Jackson: He wants GM and Ford to move that production back to the United States. And they may be able to negotiate some sort of huge tax deals and they may be able to go somewhere, but that’s not something you can do overnight.

[00:03:41] Doug McIntyre: No, that would take years, but it’s worth noting the average age of an American car on the road right now is 12 years.

[00:03:49] Doug McIntyre: So that’s a sign that Americans are willing to hang. If you can’t get a good deal, there are a lot of people who just say, you know, I’ve had this for nine years and it’s only got 120, 000 miles on it. I’m going to hang on to it. And that’s the danger that car companies face right now. Yeah,

[00:04:05] Lee Jackson: it is. And there’s a lot of people like myself.

[00:04:08] Lee Jackson: I don’t drive that much anymore. I really don’t. I mean, when I was driving when I was living in Dallas and driving into downtown Dallas from the burbs. Yeah, I was putting a lot of miles on a car. I’m not this year. I got a new CRV when we moved here. I’ll put on 5, 000 miles in a year. Yeah, here and that I will hold this car for 10 years, 20 years, 15 years, whatever.

[00:04:34] Lee Jackson: So I think, I think you’re exactly right that people are much more willing to just hang on. And, um, really, I think a lot of people keep hoping for, and it’s not going to happen. We’re never going back to the interest rates we saw two and three years ago. Never. That’s what got us into the you know, the problems we’re in now and interest rates are not going lower.

[00:04:57] Lee Jackson: They’re not going lower. The numbers we saw from the consumer and producer price indexes were higher than expected. Yeah, so add in a little of the things you’ve been talking about and it could make a big difference

[00:05:10] Doug McIntyre: No inflation has not been beaten out of the account.

[00:05:13] Lee Jackson: No, not at all. And And part of the reason that it is is got as bad as it did is they lowered interest rates to zero and kept them at zero for years