US car buyers face higher prices, less choice under Trump's tariffs

Trump announced 25% tariffs on car and auto parts on Wednesday, sending global automakers' shares down and raising fears of job losses in big auto-exporting countries. He says the levies will ultimately boost production in the United States, but analysts say the immediate effect will be on automakers' choices that will hit consumers' wallets.

"Most car makers can't eat 25%, they just can't," said Andy Palmer, former CEO of Aston Martin. "That means car makers will pass on as much of the cost of tariffs as they can," including by removing features to lower their costs while also raising prices.

Automakers may spread that cost between U.S.-produced and imported models, cut back on features, and in some cases, stop selling affordable models aimed at first-time car buyers, as many of those are imported and less attractive if they carry a higher price tag.

The changes could price more Americans out of the market. S&P Global Mobility estimated Thursday that tariffs will cause annual U.S. vehicle sales to fall to a range of 14.5 million to 15 million in coming years from 16 million in 2024. Cox Automotive estimates tariffs will add $3,000 to the cost of a U.S.-made vehicle and $6,000 to vehicles made in Canada or Mexico without exemptions.

While luxury sellers like Bentley or Ferrari say they will pass on costs, major automakers' typical margins of 6% to 8% leave little wiggle room.

Affordable models most likely to be affected include the Honda CR-V, Chevy Trax, Subaru Forester, Chevy Equinox and Honda HR-V, said Erin Keating, executive analyst at Cox.

"Car makers know they have certain vehicles in their portfolio that can tolerate lower profit margins," Keating said. "Some vehicles may just prove to be too expensive, and most of those are affordable models manufactured outside the U.S."

After 10% of the car-buying population was priced out of the market during the coronavirus pandemic, affordability still remains high on consumers' minds, Keating said.

"Would tariffs bite into another 10% of people who would be priced out?" she said. "Potentially."

U.S. auto dealers currently have plenty of inventory - about 90 days worth - but prices could start to rise after that. In recent weeks, Eric Mann, sales manager at the Szott M-59 Jeep dealership in White Lake, Michigan, 45 minutes northwest of Detroit, noticed more customers purchasing out of fear of higher prices.

Loretta Acosta, 55, of Macomb, Michigan, was checking out a Jeep Grand Cherokee at the Szott dealership on Thursday and said it "might stink" if car prices rise because of tariffs. "But I do feel like sometimes stuff stinks, and you got to put up with it for the betterment of the country," Acosta said.

'EVERYONE HURTS'

European and Asian car makers, deprived of the largest auto importing market, could cut production. If automakers stop shipping a model to the U.S., that would translate into lower production at those factories. Lower volumes mean higher costs per vehicle, "which ultimately will be passed on to consumers" in those markets, Palmer said.

On Thursday Jeron Reed, 46, of Warren, Michigan, went to Matick Chevrolet in Redford, 20 minutes west of Detroit, to finalize a lease on a 2025 Equinox EV because of the tariff threat.

"What I'm hearing within the next couple of weeks (is) prices are probably gonna jump, and they're already high," Reed said.

Some companies selling U.S.-made cars with a high percentage of tariff-exempt parts could raise prices to boost profits but still keep them low enough to take market share from tariff-affected rivals. Longer-term, major automakers would have to decide whether to ride out tariffs on a bet that they won't last, or spend two to three years moving production and supply chains under the expectations that tariffs would last beyond Trump's presidency, said Mark Wakefield, global automotive market lead at consultancy AlixPartners.

"Those ones could be big winners in three or four years if the tariffs really stay in," Wakefield said. "Or they could be losers if it somehow unwinds and they're stuck with higher costs."

Newer automakers like INEOS Automotive do not have that luxury. The France-based manufacturer started selling its off-road Grenadier model in the United States early last year at an average price of around $85,000, said CEO Lynn Calder. INEOS has since sold 8,000 vehicles in the U.S., or 60% of its total.

"I don't think it's possible to pass a price increase in the range of 25% onto a consumer," she said. "But equally, it's also very clear that we can't absorb it all."

She said INEOS will split the burden between the company, its dealers and consumers, a hybrid solution where "everyone hurts."