Car Prices to Rise as Tariffs Take Effect, Analysts Warn

As the effects of President Trump's trade policies begin to take hold, automakers are struggling to absorb the costs of tariffs on cars and car parts, with prices expected to rise significantly by the end of the year. Companies such as General Motors, Toyota, and Ford have already taken a hit from tariffs, with estimated losses ranging from $2 billion to $9.5 billion. Despite attempts to hold prices steady, analysts predict that new vehicle purchases will become increasingly unaffordable for many Americans. Tariffs as high as 27.5 percent will force sticker prices to rise, pushing the average selling price of a new car above $50,000.

Key Takeaways:

• Automakers have absorbed the cost of tariffs for months, but will soon begin to raise prices, with analysts predicting a significant increase by the end of the year.
• Tariffs have already chopped billions of dollars from carmakers' bottom lines, with estimated losses ranging from $2 billion to $9.5 billion.
• Companies such as General Motors, Toyota, and Ford have taken a hit from tariffs, with import duties subtracting $800 million from Ford's profit in the second quarter.
• The Trump administration maintains that deregulation and other measures will benefit the industry, but analysts see signs that prices are beginning to creep higher.
• Cox Automotive estimates that tariffs will add at least $5,000 to the cost of imported cars on an annual basis, and $1,000 for cars manufactured in the United States.
• Higher prices will fall hardest on less affluent consumers, many of whom will be able to afford only used models.
• The demand for pre-owned vehicles will push up their prices, and buyers of used cars often pay much higher interest on loans, which can exceed 20 percent for people with less-than-stellar credit records.
• The cost of repairs and parts will also rise, with Virginia Tire and Auto adding a tariff surcharge to prices to reflect the additional cost.

Statistics:

• Estimated losses from tariffs: $2 billion to $9.5 billion
• Percentage increase in car prices by the end of the year: up to 8%
• Average selling price of a new car: expected to rise above $50,000
• Tariffs on cars and car parts: up to 27.5%
• Additive cost of tariffs on imported cars: $5,000 per year
• Additive cost of tariffs on cars manufactured in the United States: $1,000
• Expected increase in retail prices for new vehicles: 1 percent or less
• Potential saving for buyers of used cars with the new tax deduction: hundreds of dollars
• Tariff surcharge on prices for repairs and parts: up to $5

Sources:

• "Ford expects retail prices to rise just 1 percent this year, Sherry House, the chief financial officer, said last month during a conference call with reporters."
• "General Motors, the largest U.S. carmaker, said last month that tariffs would cost the company as much as $5 billion for the full year."
• "Toyota, which makes many cars in the United States but also imports them from Japan, Mexico and Canada, said on Thursday that tariffs would cost it $9.5 billion."
• "Cox Automotive estimates that tariffs will add at least $5,000 to the cost of imported cars on an annual basis."
• "The Republican domestic policy bill passed last month eliminated penalties for violating clean air standards."