DETROIT — Analysts are predicting significant repercussions for the global automotive sector as President Donald Trump’s 25% tariffs on imported vehicles remain in place, despite a recent relaxation of certain country-specific levies.
Expectations indicate potential declines in vehicle sales reaching millions, a surge in new and used car prices, and an estimated increase in costs exceeding $100 billion for the industry, according to various research reports from Wall Street and automotive experts.
Felix Stellmaszek, the global head of automotive and mobility at the Boston Consulting Group, conveyed to Finance Newso that the situation represents a long-term structural shift driven by policy. “This may be the most crucial year for the automotive sector in history—not only because of immediate cost pressures, but also because it is leading to fundamental changes in manufacturing processes and locations,” he stated.
The Boston Consulting Group anticipates that the tariffs could impose additional costs ranging from $110 billion to $160 billion annually on the industry, potentially affecting 20% of revenues in the U.S. new-vehicle market. This development could increase production expenses for both American and foreign manufacturers.
A report from the Center for Automotive Research, a nonprofit organization based in Michigan, suggests that U.S. automakers could see costs rise by $107.7 billion. This figure includes $41.9 billion attributable to major Detroit automakers such as General Motors, Ford Motor, and Stellantis, the parent company of Chrysler.
Both assessments consider the 25% tariffs on imported vehicles that Trump implemented on April 3, as well as similar tariffs scheduled for automotive parts that are set to take effect by May 3.
While automakers and suppliers might shoulder some of the increased costs, industry analysts predict that many of these expenses will ultimately be passed on to consumers in the U.S., potentially leading to reduced sales figures.
Mark Delaney, a Goldman Sachs analyst, expressed in a Thursday investor note that “we believe the tariffs as proposed will raise the cost of both importing and manufacturing vehicles in the U.S. by at least a few thousand dollars on average, and it will be challenging for the auto industry to fully transfer those costs to consumers, especially as demand seems to be softening.” He estimates that net prices for new vehicles in the U.S. may increase by approximately $2,000 to $4,000 over the next six to twelve months in response to tariff costs.
In reaction to the tariffs, automakers have adopted various strategies. For instance, domestic manufacturers like Ford and Stellantis have launched temporary employee pricing initiatives, while others, such as Jaguar Land Rover, a British automaker, have halted shipments to the U.S. Hyundai has also stated it will maintain current prices for at least the next two months to alleviate consumer apprehensions.
Consumer sentiment deteriorated more than anticipated in April, coinciding with an inflation forecast reaching its highest level since 1981, as reported by a closely monitored survey from the University of Michigan.
Sam Abuelsamid, vice president of insights at auto advisory firm Telemetry, indicated that numerous automakers likely possess a two-month supply of vehicles not affected by tariffs, allowing them to manage sales before necessitating price increases related to the tariffs.
Telemetry anticipates that the elevated costs of production, parts, and other variables could lead to a reduction of over 2 million vehicle sales annually in the U.S. and Canada, ultimately impacting the wider economy.
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“A couple million-unit reduction in sales will have a broad impact economically,” Abuelsamid noted. “This impact is driven by rising prices, not just for vehicles, but across the board, which will strain consumers’ spending power.”
Affordability has been a pressing issue for both new and used vehicles for several years. Cox Automotive reports that the average cost of a new vehicle is nearly $50,000, a figure that does not factor in the rising cost of financing as interest rates have climbed in efforts to combat inflation.
Auto loan rates currently sit near 9.64% for new vehicles and nearly 15% for used cars, according to Cox.
Cox Automotive Chief Economist Jonathan Smoke emphasized at a recent virtual event that “we expect to see dwindling discounts and accelerated price increases as tariffs are implemented and supply tightens, leading to hikes in prices across the majority of new vehicles.” He also predicted that production and sales would decline, with prices of new and used vehicles steadily rising, and some models potentially being phased out.
Projected price hikes vary by vehicle, but Cox estimates that the 25% tariff on non-U.S. assembled vehicles could result in a $6,000 increase, while vehicles assembled in the U.S. could see a $3,600 increase due to forthcoming tariffs on automotive parts. Additionally, existing tariffs on steel and aluminum are expected to add $300 to $500 to vehicle costs.
