What are tariffs?
Tariffs are a government tax on imported goods from another country. For the U.S. auto industry, all imported cars from brands manufactured outside the United States will be subject to a tariff. Additionally, auto parts sourced from outside the United States, even those going to U.S. automakers or automakers who build select vehicles in America at domestic production facilities, will also be subject to a tariff.
Automakers importing vehicles to the United States will be subject to a 25% tariff starting April 3, 2025, and parts manufacturers will be subject to tariffs beginning in May 2025.
How will tariffs impact buying new vehicles?
Tariffs will impact buying trends in a variety of ways. Here are a few items to consider:
Now is the time to buy:
vehicles currently on dealership lots will not be impacted by the imposed tariffs, as they were already manufactured and delivered to dealerships to be sold ahead of the change. Economists in the automotive sector expect a near-term surge in buying these vehicles.
New imported vehicles will cost more:
being subject to a 25% tariff, prices for imported vehicles, which comprise 50% of the vehicle market in the U.S., will mean price increases on nearly every imported vehicle, while the Economists expect that, in conjunction with these price increases, sales will slow as manufacturers pull back on incentives, and the value of an unsold vehicle on a dealer lot is worth a higher percentage and the replacement cost is much higher. This means things could be moving away from the buyer's favor.
Imported parts will cost more:
beginning May 3, 2025, imported parts used in manufacturing vehicles assembled in the United States will be subject to tariffs. Since the procurement of parts will now be at a higher cost, it means higher production costs, which can mean higher prices on vehicles, including those built in the United States.
What are the alternatives to buying new vehicles subject to tariffs?
Car buyers can find alternatives to buying a new vehicle that are not subject to the imposed tariffs. Leasing a vehicle is one option, and while incentives on leasing may not be as robust in the coming months, leasing a vehicle allows for a shorter-term commitment to a vehicle while not taking on the entire cost. The used car market is also an alternative. Used vehicles provide the obvious benefit of costing less than a new vehicle. While it's a quality alternative as they won't be subject to tariffs, their demand will rise as more people look to hang on to their current vehicles instead of trading them in for a new one. Many might also opt to buy their leased vehicles, as well, meaning these vehicles won't be returning to the used vehicle supply chain.
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