Brace Yourself: Tariffs Could Increase Car Prices Immediately—Or Not?

One third of all light-duty vehicle production in North America—about 20,000 units a day—could be lost as soon as this week because of the new tariffs the Trump Administration has imposed on imports from Canada, Mexico, and China—and that means all vehicles will cost more money. At least, should the tariffs go into full effect. On March 5, just one day after the tariffs on goods from Mexico and Canada went into effect, the Trump administration declared a 30-day pause on tariffs relating to the auto industry, heeding intense lobbying by Detroit's Big Three automakers (and others.

While the reprieve is surely welcome to automakers (and consumers), it's not without strings. The administration is beckoning automakers to use that time to shift production, parts sourcing, and more back to America—a worthy goal, if one that's nearly impossible to meet in one month. It's yet another backtrack in a confusing string of on-again, off-again trade threats, such that even this pause exacerbates pressure on the auto industry all the same, since car makers' supply chains cannot easily be moved, nor can new factories go up in a few weeks. Blend in that automakers operate on long timelines, with five-plus-year plans, and the convulsions in trade are about as unwelcome as you could imagine.

U.S. President Donald Trump originally signed an executive order on Feb. 4 to slap 25 percent tariffs on goods from Canada and Mexico, which he postponed for a month, but executed today. He also increased the tariffs on goods from China to 20 percent. Another add-on is the 25 percent tariff on steel and aluminum slated to take effect March 12, which would be on top of the other taxes. There are no credits for U.S. content in a vehicle built in Canada or the U.S. All these actions sparked retaliatory tariffs from the targeted countries. And the rest of the world is bracing for tariffs to affect them as early as next month.

The U.S. and Canada have had free trade since 1965 and Mexico was added in 1992. The North American automotive industry is a finely woven fabric of efficiency in an effort to control costs and quality through economies of scale. It means parts from all three countries may cross borders many times before a finished vehicle comes off the line. The tariffs will cause the industry to fray and rip apart, experts say.

The impact—again, should the tariffs stick around—will be almost immediate, says S&P Global Mobility analyst Stephanie Brinley during an Automotive Press Association webinar.

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Cars Will Cost More

Consumers will feel the pain. Anderson Consulting estimated prices will increase from between $4,000 to $10,000. Incentives will go away almost immediately, Brinley says, and there will be less inventory to choose from. Strapped automakers are more likely to drop their lower trim models.

S&P sees a 70 percent probability that the tariffs will last no longer than two weeks, given how detrimental and disruptive they are to North American industry. But the damage will begin within days, with plants reducing or even halting production. S&P sees a 20 percent chance the tariffs remain in place for six to eight weeks and a 10 percent chance they become permanent.

Every scenario includes pain. Consumers will pay more for new cars, leased cars, and used cars. Automakers and suppliers will face higher costs, some companies would not be able to survive. Future product development will be affected in any industry that is working on new products, such as cars, that will hit the market years from now. The automotive industry is one that only invests when it foresees long-term stability.

Domestic automakers are hit particularly hard, Tesla being the exception because all the vehicles it sells to U.S. consumers are built in the U.S. Even though Japanese, Korean, and some European companies can import from their home countries without tariffs, all companies who use the North American ecosystem and supply chain to build cars will be hurt by higher costs.

One Missing Part Can Mean Disaster

The impact on the supply chain will be huge and as the semiconductor shortage taught us during the COVID pandemic, one missing part can shut down vehicle assembly. Most suppliers cannot absorb the extra cost of the tariffs. If they cannot pass the cost onto the automaker, many would be forced to operate at a loss which leads to bankruptcy and more breaks in the chain. Tariffs can create more delays at border crossings, affecting the just-in-time delivery that plants depend on to keep the assembly lines running.

Automakers can try to absorb the extra cost but not forever. They have attempted to stockpile vehicles and parts but that is not a permanent solution. Brinley said most have a week’s supply, at best, in reserve.

Some companies may decide to shut down operations rather than continue at a loss, hoping the tariffs are short-lived and they can resume production again soon.

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Moving Production Is Not Easy

Shifting vehicle assembly to the U.S. is not easy, inexpensive, or quick. Some vehicles are single-sourced in the affected countries. Some vehicles are made in U.S. plants as well as ones located in Canada or Mexico, but the U.S. plants don’t have the capacity to double (or triple) production if non-U.S. plants are shuttered. There is not a reserve of vacant plants that can be brought back to life and it takes years and millions of dollars to build a new one. Localized suppliers would also have to move. All of this will make cars more expensive.

The list of affected vehicles is long and includes many high-volume and affordable vehicles. Among the affected vehicles are popular SUVs like the Honda CR-V, Toyota RAV4, Chevrolet Equinox and Blazer, Ford Bronco Sport and Mustang Mach-E, Jeep Compass, and larger vehicles like the Chrysler Pacifica minivan, Chevrolet Silverado and GMC Sierra full-size pickups, Ram heavy-duty pickups, and smaller trucks like the Ford Maverick and Toyota Tacoma.

Renegotiating USMCA Trade Agreement

All of this could be a ploy for Trump’s desire to renegotiate the USMCA trade pact early—it is due to be renegotiated in summer 2026 and Trump is expected to push for more U.S. content requirements and increased labor costs in Mexico as well as safeguards to keep Chinese automakers from using Mexico as a springboard to enter the U.S. market tariff-free.

The tariffs have blown a hole in a trade agreement and supply chain that has taken six years to develop. It will take time and cost a lot to redevelop them, Brinley says. And in the interim, automakers around the world will be delaying key decisions amid the uncertainty.

This is one of most fluid situations the auto industry has ever seen, Brinley says. It is an expensive problem to solve, but the industry is more agile than used to be and should be able to pivot more quickly. But with so much uncertainty on tariffs, emissions requirements, EV rebates, and manufacturing credits, “we’re in for a bumpy 2025.”