President Donald Trump disrupted the automobile sector by implementing a 25% tax on all imported vehicles effective last week. The administration plans to extend these duties to encompass imported car components starting in early May, leaving automakers in disarray as both experts and stakeholders struggle to comprehend potential shifts within the U.S. and international automotive industries.
Within the swiftly evolving policy landscape of the Trump administration, both analysts and automobile manufacturers are striving to comprehend the new tariffs and predict their possible effects. At present, experts continue to unravel the long-term implications for the American automotive industry. Due to the uncertainty surrounding these tariffs and their potential to reshape broader economic conditions, it remains challenging to foresee what the U.S. auto sector might resemble one year from now, as stated by analysts consulted by IBD.
Kindly view the video available at Investors.com titled "Car Prices Are Expected to Increase Due to Trump Tariffs: Information You Should Be Aware Of."
"We remain uncertain about this situation, which is why I emphasize our lack of certainty; although we understand current conditions, the wording within these proclamations allows for potential negotiations and future alterations," explained Stephanie Brinley from S&P Global Mobility to IBD concerning the enduring effects of the Trump administration’s auto tariffs.
Nevertheless, experts concur that Trump’s auto tariffs will have at least three immediate impacts: an overall increase in new vehicle prices due to higher manufacturing expenses, a probable dip in new-car sales for 2025, and increased consumer interest in purchasing used cars instead.
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Trump Tariffs: Prices to Increase and Undermine Demand
Wedbush Securities analyst Dan Ives stated on April 6 that the present Trump tariffs have the potential to "alter the course of the U.S. automotive sector for many years ahead."
Wedbush Securities predicts that the tariffs will impose approximately $100 billion in yearly expenses on the automotive industry. These additional costs will be transferred directly to consumers, leading to a significant reduction in demand, as they suggest.
Ives anticipates that the tariffs will lead to demand destruction, causing new unit sales to decrease by 15% to 20% in 2025. He mentions that the average vehicle price could rise by $5,000 to $15,000 as a consequence.
According to Ives, every car manufacturer globally will need to increase their prices in some manner when selling in the U.S., and the impact of this tariff news on worldwide supply chain logistics is challenging to fully comprehend at present.
In late March, Morgan Stanley’s automotive industry analyst Adam Jonas noted that if the proposed 25% tariff on all imported vehicles persists indefinitely within the U.S., it could lead to an increase in the “average car price” by around 11-12%. According to his projections, this hike might push up typical monthly auto loans from roughly $750 to about $830-$840 each month.
Nevertheless, experts remain uncertain about when the prices of new vehicles will rise.
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The positive aspect at present is that stockpiles of new vehicles are quite substantial," stated Garret Nelson, a CFRA automotive industry analyst, during an interview. As reported by Nelson, as of late February, the availability of new cars stood at 89 days' worth, which is roughly 1.5 times greater than the historical average of 60 days.
Nelson stated that the excess inventory might significantly soften the effect of how rapidly prices could increase from this point onward.
New Vehicle Sales Contracting
Prior to the coronavirus pandemic, U.S. new vehicle sales came in above 17 million units for five consecutive years, according to Nelson. The U.S. has not rebounded to pre-coronavirus levels of new car sales, and many analysts see those as peak years for the industry.
Analysts currently anticipate year-over-year decreases in both 2025 and 2026 due to Trump's imposed 25% tariffs.
S&P Global Mobility predicts that annual new U.S. light-vehicle sales will drop to a range of 14.5 to 15 million units over the next few years, compared with 16.03 million units expected for 2024. According to data from S&P Global Mobility, approximately 54%, which equates to about 8.7 million vehicles, of the previous year’s sales took place within the country, whereas 46% were imports.
In 2024, the highest number of vehicle imports into the U.S. came from Mexico, with South Korea, Japan, and Canada following closely behind, as reported by S&P Global data.
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Brinley informed IBD that automobile sales might drop in 2025 due to rising costs, with buyers considering whether they want to invest in expensive purchases such as a new car.
"We could see the U.S. light vehicle sales market find a new natural state that's below 16 million units," Brinley said.
Shoppers Might Face Fewer Options
The S&P Global Mobility analyst noted that certain car manufacturers might completely remove some of their vehicle models from the American market "if it isn't economically viable for them."
“Whether this ends up being a long-term choice or a short-term one, only time will reveal,” Brinley stated. “However, we might witness a decrease in vehicle options.”
Luxury brands like Audi, Jaguar-Land Rover, and Aston Martin have Already put on hold or reduced shipments to the U.S. in April as they evaluate the effects of Trump's tariffs on car imports.
Moreover, several automakers recently began keeping vehicles in port inventories after shipping them to the U.S., aiming to mitigate the impact of Trump's escalating trade war, as reported by Financial Times on Wednesday.
Soon after Trump declared a halt to new tariffs on Wednesday, the leader of the German automotive industry made comments. Volkswagen It offered initial first-quarter figures. The company mentioned that write-offs concerning automobiles en route, due to the tariffs, would amount to approximately $300 million. This significantly reduced the quarter’s profits to their lowest point since the semiconductor scarcity caused by the pandemic in 2021.
The Preowned Vehicle Market and the 'Cubanization' of the U.S.
Jonas informed investors that the tariffs might cause the typical age of cars on American roads to rise. This trend could result in what he referred to as the "Cubanization" of the U.S. vehicle population. Following Cuba’s shift to communism, trade limitations kept the nation's automotive scene essentially frozen at 1959 levels for over fifty years.
Brinley concurred with the statement to an extent. She mentioned that although certain U.S. consumers might keep their cars for more extended periods, it won’t be as “pronounced” as in Cuba.
Nelson also mentioned that certain potential buyers who would typically purchase new cars might choose to "settle for" used vehicles in the coming months.
"We have high hopes for the used car market, and we anticipate an upsurge in the number of used cars being sold, leading to increased vehicle prices," Nelson stated.
Even with this attitude, the used car dealer Carvana sank 20% last week. CarMax dropped below expectations before the earnings report, subsequently plunging 15% on Friday due to missing estimates.
Nelson also mentioned that the auto aftermarket retailers, including AutoZone and O'Reilly Automotive , stand to gain from the Trump tariffs.
The analyst stated, "Given that the average age of cars on American roads has reached an all-time peak, and considering that people might opt for more pre-owned rather than brand-new vehicles, leading to an even older vehicle population, this trend seems likely to continue."
"The higher the number of older vehicles on the roads, the greater the demand for more regular upkeep and fixes. This situation greatly benefits firms like AutoZone and O'Reilly," Nelson remarked.
The Autonomous Industrial Complex
In general, experts seem skeptical regarding the impact of the tariffs on the automotive industry.
Morgan Stanley's Jonas noted that the effects could be so significantly detrimental that it becomes difficult to envision these policies as a permanent aspect of the U.S. automotive industry.
Jonas cautioned, "Therefore, we recommend that our clients stay alert and ready for the subsequent phase of this larger conversation regarding U.S. manufacturing competitiveness and the resurgence of an independent industrial sector amidst AI-powered machinery."
After Trump declared the 25% automobile tariffs on March 26, the 33 stocks in theauto sector have been affected. IBD Automotive Industry Sector Group collectively dropping by less than 7% following Wednesday's recovery. As of now, this sector has declined over 32% in the year 2025. This performance ranks the industry as number 102 among the 197 sectors monitored by IBD.
A Tariff-Induced Downturn For Automobile Industry Stocks
Since the president announced the auto tariffs on March 26, automotive stocks have suffered significant declines.
Even after Wednesday's rebound, General Motors has dropped nearly 8%, heading towards its fifth consecutive monthly decrease. Ford has been exchanged periodically on a monthly basis, and has dropped over 18% for the year.
Chrysler-parent Stellantis Has dropped by 20% in April, placing it at 70% of its peak value from March 2024.
EV giant Tesla , which is broadly regarded by experts as the least impacted by Trump's automobile tariffs It has dropped nearly 12% since its closure on March 25.
Meanwhile, Volkswagen, Japan-based Toyota ADR and Honda Motor have all declined significantly. Ferrari rebounced to a 3% drop after the announcement, owing to a significant recovery on Wednesday.
Based on an analysis from Morgan Stanley, Stellantis and Porsche exhibit the greatest reliance on the U.S. market among European automakers. Each company derives roughly 25% of its vehicle units sold from the American market. All production for Porsche occurs within Europe. In contrast, over half of Stellantis’ vehicles are manufactured in the U.S., complemented by approximately 32% coming out of Mexico, around 11% from Canada, and just under 4% produced in Europe, as stated by Morgan Stanley.
China's direct U.S. automotive sales are "fairly limited and spread out," amounting to just 106,000 units sold last year, according to Morgan Stanley. These cars were predominantly from the Volvo and Polestar brands.
In general, Brinley stated that Trump's automobile tariffs could likely lead to increased manufacturing within the U.S., which aligns with the purpose of this policy. Nonetheless, this process requires considerable time, and these tariffs probably won’t result in "100% of any vehicle being manufactured domestically," according to her observations.
"Will this lead to increased investments in manufacturing? Absolutely, but expecting all components to be produced domestically isn’t practical," Brinley stated.
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