Car Prices Expected to Rise as Tariffs on Parts Kick In

 

Car Prices Expected to Rise as Tariffs on Parts Kick In

 

Tariffs on imported parts will have a broad impact because all vehicles use components made abroad.

 

Jack Ewing

By Jack Ewing

May 3, 2025, 12:00 a.m. ET

https://www.nytimes.com/2025/05/03/business/trump-auto-parts-tariffs.html

 

The United States imposed 25 percent tariffs on imported auto parts on Saturday that could sharply raise prices for new and used vehicles as well as for repairs and insurance.

 

The latest tariffs, which President Trump ordered in March as part of his plan to promote domestic manufacturing, come after the 25 percent levies on imported cars that took effect in early April.

 

This second round of duties on imported parts will have a broader impact because even cars made in the United States often have engines, transmissions, batteries or other components produced in other countries.

 

The administration said on Tuesday that the tariffs were intended “to protect national security by incentivizing domestic automobile production and reducing American reliance on imports of foreign automobiles and their parts.”

 

The tariffs on parts will not apply to components from Canada or Mexico as long as those goods meet the requirements of a North American trade agreement negotiated during Mr. Trump’s first term. Among other things, that deal requires that a minimum percentage of the content of auto parts come from within North America.

 

The administration also said that imported auto parts would not be subjected to other levies, like the ones on aluminum and steel. And companies that made cars in the United States would be exempted for two years from having to pay a portion of the tariffs for imported parts.

 

Mr. Trump’s tariffs have already pushed up new car prices as customers flocked to dealerships to buy vehicles before the levies took effect. The tariffs are having a ripple effect on the used car market as more people look for affordable alternatives to new cars, increasing demand and prices.

 

The tariffs on new auto parts are also expected to increase the cost of repairs and insurance premiums, because replacement parts will become more expensive. Rising car prices will contribute to overall inflation, which Mr. Trump had promised to bring down.

 

The president has insisted that the tariffs will bring manufacturing back to the United States. But even if that policy succeeds, consumers will still pay more for cars. Many goods, including lots of auto parts, can often be made much more cheaply in China, Mexico or other countries outside the United States.

 

“A lot of parts, like fasteners, washers, carpet, wiring looms are just not available — we can’t even buy those parts here,” Jim Farley, the chief executive of Ford Motor, told CNN this week.

 

Automakers and suppliers say it will take years for them to relocate assembly lines. And they are unlikely to commit billions of dollars to domestic manufacturing because of uncertainty about the direction of trade policy.

 

Mr. Trump has frequently changed his mind about the size of tariffs and how they should be applied. On Tuesday, he modified some of the rules to allow automakers to avoid paying duties on a portion of the components they import for two years. The measures provide the industry some relief, but car prices will still rise by thousands of dollars, analysts said.

 

There will be unpredictable side effects. The financial stress could drive some suppliers out of business, creating parts shortages.

 

“Auto suppliers are already at thin margins,” said Lenny LaRocca, U.S. automotive industry leader at the consulting firm KPMG. “They can’t afford the full cost of 25 percent tariffs.”

 

Mr. Trump’s decision to exempt many parts from Canada and Mexico will, however, ease the burden on some companies.

 

The auto industry accounts for about 5 percent of Mexico’s gross domestic product and employs around one million people in the country. Vehicles and parts are by far Mexico’s largest exports to the United States.

 

“Little by little, this haze is clearing up,” Marcelo Ebrard, Mexico’s economy minister, said at an event with business leaders and diplomats on Wednesday. “What we are going to face is a situation that is not as disadvantageous as perhaps many expected it to be.”

 

In Canada, however, many parts makers supply car factories in that country, said Flavio Volpe, the president of the Automotive Parts Manufacturers’ Association. And the vehicles those plants make will still be hit with tariffs when they are exported to the United States.

 

“The health of the Canadian auto parts sector is that there is a cluster of manufacturing that we can supply locally,” Mr. Volpe said.

 

On Friday General Motors said that because of tariffs it was eliminating a third shift at a pickup truck assembly line in Oshawa, Ontario. That plant will now build more trucks for Canadians, the company said. Unifor said the reduction would eliminate about 700 union jobs and was likely to cause parts makers to lay off another 1,200 people.

 

Prime Minister Mark Carney said that G.M.’s decision was a “terrible manifestation” of the economic crisis Mr. Trump’s tariffs had created for Canada.

 

The tariffs will hit some carmakers harder than others. Tesla and Ford are somewhat less vulnerable. Tesla manufactures all of the cars it sell in the United States in California and Texas. Ford says that it makes nearly 80 percent of the vehicles it sells in the United States domestically, including F-series pickups, which are the best selling vehicles in the country.

 

General Motors will suffer more, analysts say, because imported parts often account for more than half the value of Chevrolets or Cadillacs made in the United States. G.M. also imports cars from Canada, Mexico and South Korea.

 

Volvo Cars, which has a factory in South Carolina but uses many parts from China, will also be hard hit, analysts say.

 

Even companies that make vehicles in the United States will feel the pain. Rivian builds electric pickups in Illinois, but imports batteries from South Korea and China that will be subject to tariffs.

 

The tariffs are expected to shrink the supply of less expensive vehicles. Nearly 80 percent of cars priced at less than $30,000 will be subject to 25 percent tariffs, including popular vehicles like the Honda Civic, Toyota Corolla and Chevrolet Trax, according to Cox Automotive.

 

Car prices will probably not skyrocket immediately, because most carmakers and their dealers have large inventories of cars manufactured before the tariffs took effect. Ford, Hyundai and Volkswagen are among carmakers that have said they will not raise prices for several months. But carmakers are not profitable enough to absorb the increased cost of tariffs indefinitely.

 

Administration officials continue to discuss tariffs with automakers and the duties could change. But the uncertainty is creating huge headaches for carmakers. G.M. said on Thursday that the tariffs would cost it up to $5 billion this year. Other companies like Stellantis and Mercedes-Benz have told investors they can no longer make reliable predictions about sales and profit for 2025.

 

Ian Austen and Emiliano Rodríguez Mega contributed reporting.

 

Jack Ewing covers the auto industry for The Times, with an emphasis on electric vehicles.