US Auto Tariffs May Raise Prices, Limit Choices, Experts Warn

President Donald Trump’s recent announcement imposing a 25% tariff on imported cars and auto parts has raised significant concerns in the North American auto industry.

Effective Apr. 2, the tariffs will apply to vehicles produced outside the United States, including those manufactured in Mexico and Canada. Industry experts warn that this move will lead to higher prices, fewer choices, and reduced features for US consumers, threatening the region’s automotive integration.

“Most carmakers cannot absorb 25%, they simply cannot. That means they will pass on as much of the cost as they can,” said Andy Palmer, former CEO, Aston Martin. He explained that automakers would likely raise prices and reduce features to offset the cost increases.

The new tariffs, which will impact manufacturers in the United States, Mexico, and Canada, are expected to drive up vehicle prices significantly. Cox Automotive estimates that US-made cars will see an additional US$3,000 in costs, while vehicles from Mexico and Canada could face price hikes of US$6,000. These increases could lead to a decline in US vehicle sales, which S&P Global Mobility forecasts will drop  to between 14.5 million and 15 million annually, down from 16 million in 2024.

Affordable models are expected to be hit hardest, particularly those produced outside the United States, including popular vehicles such as the Honda CR-V, Chevy Trax, Subaru Forester, Chevy Equinox, and Honda HR-V.

“Some vehicles may simply become too expensive, and most of those are affordable models manufactured outside the United States,” said Erin Keating, executive analyst, Cox Automotive. She noted that automakers would have to raise prices on these models, which already have lower profit margins.

The tariffs could also worsen affordability issues in the car market. Following the pandemic, around 10% of US car buyers were already priced out, and experts fear this could exclude another 10% from the market.

While luxury brands like Bentley and Ferrari have indicated they will pass on the tariff costs without significantly altering their pricing strategies, the impact on mass-market brands is far more severe due to tighter profit margins. Automakers may also be forced to cut back on entry-level models, which are often imported and cater to first-time buyers.

The US automotive industry’s reliance on imported parts and vehicles is also under scrutiny. According to the Mexican Association of the Automotive Industry (AMIA), the tariffs could undermine regional integration achieved under the USMCA trade agreements. “In times of global uncertainty, North America must strengthen itself, not divide,” the AMIA stated, emphasizing that the tariffs could threaten jobs and investment across the region, particularly in Mexico.

The new tariffs could disrupt the automotive supply chain, impacting everything from sedans and SUVs to key auto parts like engines and powertrains. Despite US government reassurances that auto parts covered under USMCA would be exempt, concerns remain over potential tariffs on non-US content in vehicles.

The AMIA’s position is backed by other major Mexican automotive organizations, including the National Autoparts Industry (INA), the National Association of Bus, Truck, and Tractor-Trailer Producers (ANPACT), and the Mexican Association of Automobile Dealers (AMDA).