Tariffs will boost new car prices, lead to massive layoffs
President Donald Trump’s proposed 25% tariffs on imports from Mexico and Canada and 10% on goods from China would likely raise the average price for a new car and could lead to massive layoffs — but by how much depends on how long the tariffs remain in place.
The tariffs are in flux, with Trump on Monday agreeing a 30-day pause for both Mexico and Canada as negotiations kick off.
Assessing the tariff proposal, analysts estimate new car prices, on average, would likely increase by anywhere from $1,000 to $9,000 or more. Some vehicles would be affected more than others. They also estimate that more than 165,000 autoworkers could be laid off if tariffs remain in place for any considerable time.
If Trump enacts tariffs, the timeline for price hikes and job cuts could vary to within a few weeks or months, depending on the vehicle and the inventory that is in stock, said Sam Abuelsamid, vice president of Market Research at Telemetry Insights.
That’s because tariffs — the taxes on goods that cross international borders — do not get applied until the products actually cross the border.
Need a break? Play the USA TODAY Daily Crossword Puzzle.
“Anything that is in inventory as of today isn’t affected. Everything that crosses the border from tomorrow on gets a tariff,” Abuelsamid said. “Price changes will vary based on the models, with more popular models that have lower inventories being hit the soonest.”
Also read:Detroit automakers see stock drop as Trump’s trade war, tariff fears shake Wall Street
For example, Toyota has tight inventory of the Rav4 SUV and Honda has short supply of CR-Vs and Civics, he said. All three vehicles are assembled in Canada and they probably would see an impact from tariffs within a few weeks. The Jeep Compass, made by Stellantis, is built in Mexico. It might take a bit longer for it to be impacted because Stellantis has a good supply of inventory on the Compass, Abuesamid said.
“Prices will likely remain elevated for a similar period after tariffs are removed until that inventory is depleted,” Abuelsamid said. “But parts going through the supply chain might add several weeks or months before you see adjustments.”
Put simply by economist Michael Hicks, who spoke to the Free Press on Monday before Trump agreed to the pause, “This is the one-time biggest tax increase on America in history. So it predictably has the effect of dampening economic activity. The people affected most will be the people who are renting, people who need to buy cars, people who need to buy computers.”
Hicks, a professor at Ball State University in Muncie, Indiana, estimates the proposed tariffs would amount to a $2,000 tax on average household spending, hitting lower-income people the hardest.
Where it stands at the moment
Trump has said the new tax is needed to mitigate an influx of immigration and fentanyl trafficking over the U.S. borders. Canada moved to retaliate by imposing its own tariffs on U.S. imports, and China and Mexico have said they also would respond. Both Canada and Mexico agreed to new border security and anti-fentanyl measures in calls with Trump on Monday.
Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau each agreed to deploy 10,000 troops to their U.S. borders to fight illegal immigration and drugs.
Around 90% of auto exports from both Mexico and Canada go to the U.S., according to the Mexican Automotive Manufacturers’ Association and the Canadian Vehicle Manufacturers’ Association. Detroit, of course, is at the epicenter of domestic impact.
As of Monday morning, Ford Motor Co., General Motors and Stellantis did not provide new comments about the pending tariff plans. All had said previously, in some fashion, that they believed Trump shares their goal of a strong U.S. auto industry and could make some adjustments to their manufacturing.
Stellantis deferred its comment to the American Automotive Policy Council. Former Missouri Gov. Matt Blunt, president of the council, said last month that cars and parts that meet the USMCA’s rules of origin should be exempt from any new tariffs.
“If these tariffs are imposed, all vehicles and parts that comply with current USMCA trade agreement rules should be exempt, as they meet the strict standards originally negotiated by President Trump to support jobs and investment in the United States,” Blunt said.
The industry’s lobby group, the Alliance for Automotive Innovation, had this to say on Saturday from CEO John Bozzella: “Seamless automotive trade in North America accounts for $300 billion in economic value. It not only keeps us globally competitive, it supports auto industry jobs, vehicle choice and vehicle affordability in America. We look forward to working with the administration on solutions that achieve the president’s goals and preserve a healthy, competitive auto industry in America.”
But the impact from tariffs, if imposed, could be quick, said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions LLC.
“Just-in-time supply of parts could hamper production quickly,” Fiorani told the Free Press on Monday. “Tariffs applied to high-value parts such as engines and transmissions sourced from Canada will add dramatically to the cost of vehicles produced in the U.S. Where that cost rises too much, as in engines for the Ford F-150 and SuperDuty trucks and transmissions for the Chevrolet Corvette, production could come to a halt very quickly.”
Nearly all automakers will have to raise prices
Abuelsamid told the Free Press on Monday that if tariffs are imposed and stay in place for the entire year, he projects a loss of 2 million vehicle sales in North America for 2025, with the exact impact varying based on model and inventory. About 200,000 of those sales will be lost in Canada, the rest in the States. He said even shorter-term tariffs would have an impact on the economy that will persist for some time after they are lifted.
“That’s in large part going to be due to higher prices. The automakers do not have the profit margins to absorb a 10% to 25% tariff. That will be passed on to consumers,” Abuelsamid said, adding that vehicles are “already too expensive” for many car buyers to afford.
According to Kelley Blue Book, the average transaction price for a new car in December was $49,740. Abuelsamid predicts the tariff increases would impact the wholesale price on a vehicle by 18% to 20%, which then will translate to a “20-ish-%” increase in the price to a consumer. That means on a $49,000 car today, the price could go up by $9,800 or more, he said.
“Actually, it’ll probably be worse than that,” Abuelsamid said. “Supply chains are complicated and there are a number of components that cross borders a number of times.”
Each time a part crosses a border, it will be taxed, he said. An example Abuelsamid gave is an automaker that he declined to name told him it gets the materials to make wire harnesses from Japan. Those materials go to Mexico to be made into the wiring harness, then those harnesses are shipped to Texas to be attached to an air bag. Those are then shipped back to the automaker’s plant in Mexico to be installed into a car seat. Then the vehicle is shipped back into the United States.
“So you’re going to pay tariffs the two times it comes into the U.S. and potentially the two times it goes into Mexico,” Abuelsamid said. “Another example is the Ford F-Series pickups with the V8. Those V8 engines are built in Windsor, so Ford is going to pay a 25% tariff for every engine they bring into Dearborn and pay tariffs for other components that come into the U.S. from Canada and Mexico. Even if the vehicle is built here, they will have a tariff impact.”
He said nearly all vehicles would see some tariff impact. To shift production of all parts and vehicles to the United States, Abuelsamid said takes years to do, “which means consumers will pay for many years.”
Soft impact on prices, for now
Others see a lesser impact. Dan Ives, global head of Technology Research and senior equity analyst at Wedbush Securities said in a Monday research note, “While GM, Ford and Stellantis are heavily tied to much production in these countries, we believe the supply chain can adjust to a near-term shock and weather the storm.”
Ives said if tariffs stay in place for 30 to 60 days, it should have minimal impact on GM and Ford. But if tariffs last longer than 90 days, Ives forecasts the average transaction price on a new vehicle could rise by $1,000 to $2,000.
Fiorani of AutoForecast Solutions added that key models likely to be impacted the most by tariffs include the Toyota RAV4, Honda CR-V, Chrysler Pacifica, Ram 2500/3500 pickup, Chevrolet Equinox, Chevrolet Blazer, Ford Maverick and Ford Bronco Sport.
“Other models are important, especially the EVs, but these models make up significant revenue and profits,” Fiorani said. “Among the most profitable vehicles from these regions are the Chevrolet Silverado and GMC Sierra, which have redundant production facilities in the U.S. Production of these two trucks will continue, despite parts coming from Canada, to maintain a level of inventory, but that, too, will begin to slide.”
He said in the short term, sticker prices won’t change in the hope that the trade issues will be brief, but as supplies of these models slip, transaction prices will rise.
“Large enough inventories of most vehicles will keep consumers and dealers happy for a few weeks, but before the end of February, should the issue remain, we will see shortages of popular models,” Fiorani said. “Canada’s largest U.S. trading partners include Michigan, Indiana, Ohio, Tennessee, Kentucky, and those states make up more than 50% of U.S. vehicle production.”
Prepare for significant layoffs
In the United States, 15.9 new vehicles were sold in 2024. If tariffs erode those sales by about 2 million vehicles, Abuelsamid would expect to see 15% to 20% of all U.S. autoworkers to be laid off. According to the U.S. Bureau of Labor Statistics, there were about 1.1 million motor vehicle and parts manufacturing jobs as of December. That means 165,000 or more people could lose their jobs.
“It’s going to mean significant layoffs,” Abuelsamid said. “And, for every automaker job, there are seven other jobs that depend on those.”
In addition, many of the smaller suppliers that make parts for bigger suppliers are already under pressure to lower costs.
“A lot of these are smaller companies. They cannot afford to absorb these extra costs,” Abuelsamid said. “So you will see a lot of them go out of business.”
A big blow to Michigan
If there’s any doubt to that, Hicks has studied the impact from Trump’s 10% tariff he put on China during his first term in office, which President Joe Biden left in place. It took about six months before the United States saw the first impacts on costs rising on goods from China and a loss of jobs across all types of U.S. manufacturing and agriculture.
His data showed that in January 2017, Michigan had 617,000 manufacturing jobs. By the time the tariffs hit in March 2018, there were 627,000 manufacturing jobs with employment hitting a peak in December of that year at 633,900. But that would be the last time Michigan saw that level of employment in manufacturing.
“In January 2020, the last month before the COVID pandemic hit, there were 619,000 manufacturing jobs in Michigan,” Hicks said. “So the Trump administration had effectively killed off all the manufacturing job growth by the month before COVID and that was due to tariffs.”
Auto industry sales had slowed substantially and the Midwest was at the cusp of a recession, but COVID-19 masked the impact of the tariffs, and Hicks said, “That tariff was nothing compared to what we are seeing being proposed.”
He said Michigan imports some $300 billion worth of goods between Canada and Mexico each year. so tariffs that run from one to six months would result in the loss of many jobs. It will also cause people to put off buying cars, homes or doing home improvement since a lot of lumber comes from Canada. All of it impacts Michigan’s economy.
“Last time (in 2018), you lost 15,000 manufacturing jobs, and that was just with tariffs of 10% on China. So you would expect this to be much worse. China is a far-off trading partner. Now you’re talking about your most profitable trading partners who are buying a ton of stuff,” Hicks said. “This isn’t going to do anything to make Michigan great again.”
Headed for a major recession
U.S. Rep. Haley Stevens, D-Birmingham, said on MSNBC on Monday morning that the “draconian tariffs” Trump threatened to impose on Canada feel more like a tax on Michiganders and the fallout will be severe.
“We’re looking at increased cost to consumers,” Stevens said. “I have spent the weekend … talking about what is going to happen to plants, Michigan automotive plants. I’ll tell ya, I’m hearing some are going to shut down. This is a tough moment for us. Sometimes tariffs can be used in a strategic and coordinated way, but on our best trading partner, that is going to hurt us here in Michigan.”
Stevens, who worked on former President Barack Obama’s auto task force in 2009 that helped guide General Motors and then-Chrysler Corp. through bankruptcy, said she knows the auto industry well and it does not need any disruptions right now.
“People are working so darn hard, they’re putting the world on wheels,” Stevens said. “Now, all of sudden, we’re going to say, ‘Hey we have to stop manufacturing for today because we don’t have trade at the level we used to with Canada.’ They buy Michigan goods. We sell into Canada.”
Stevens said the Democrats are prepared to fight, accusing the Trump administration of acting unilaterally without the consent of Congress.
If Trump does enact the tariffs, the economic impact will resonate from the auto industry across the economy to grocery prices and even housing prices given much of the softwood lumber used in framing new houses comes from Canada, said Abuelsamid.
“It’s going to be really, really bad for the U.S. economy,” Abuelsamid said. “We’re going to have a major recession here in the United States if this continues.”
More:Detroit chamber, Fain criticize Trump tariffs; list of affected automakers
More:Detroit Axle workers OK new contract, averting strike
Jamie L. LaReau is the senior autos writer who covers Ford Motor Co. for the Detroit Free Press. Contact Jamie at [email protected]. Follow her on Twitter @jlareauan. To sign up for our autos newsletter. Become a subscriber.
link
