How New Tariffs Will Impact Car Prices and What Dealerships and Consumers Need to Know

How Tariffs Will Impact Car Prices

Feb 25, 2025

The automotive industry is bracing for another shake-up. Newly proposed tariffs on vehicle imports could increase the cost of new cars in the United States by anywhere from $1,000 to $9,000, depending on the model and brand. The effects will not stop there. Rising new car prices will push more consumers toward used cars, tightening supply and increasing costs in the pre-owned market. Service and repair expenses will also rise due to tariffs on imported parts, making vehicle ownership more expensive across the board.

For dealerships, the key question is how to adapt and remain competitive while still delivering value to customers. For consumers, understanding the potential price changes and knowing when and how to buy could mean the difference between overpaying or making a smart financial decision.

How Tariffs Will Impact Car Prices

New Car Prices Are Set to Climb

The U.S. government’s tariff proposal is designed to increase taxes on imported vehicles and auto parts, particularly those from China, Mexico, and Europe. While the goal is to boost domestic manufacturing, the reality is that these tariffs will drive up production costs, and those costs will be passed directly to consumers.

Vehicles with imported components could see price increases ranging from $1,000 to $9,000, with luxury brands and full-size SUVs seeing the largest hikes.
Electric vehicle (EV) manufacturers like Tesla and Rivian, which rely on imported batteries and components, will be hit especially hard.
Luxury brands such as BMW, Mercedes-Benz, and Audi—which source many of their parts and manufacturing from abroad—will need to adjust pricing to remain competitive.

Used Car Prices Will Also Rise

As new car prices increase, more buyers will turn to used vehicles as a cost-saving alternative. This will create a surge in demand in an already tight market, causing used car prices to increase by an estimated 5% to 10%.

Certified pre-owned (CPO) vehicles will become an even more attractive alternative, as they offer like-new warranties at a fraction of the cost of new models.
Lease returns have been lower in recent years, reducing the available supply of high-quality used cars. This will push prices up further.

Higher Service and Repair Costs Are Coming

Tariffs will not just impact vehicle sales. Service and repair costs will also rise, affecting both consumers and dealership fixed operations.

Many replacement parts are sourced from Mexico and China, meaning repair costs will increase due to the 25% tariff on imported components.
Longer wait times for parts could also become an issue, as supply chains adjust to the increased costs and availability of domestic alternatives.
Insurance rates may rise because higher repair costs mean more expensive claims for insurers, which will be passed down to consumers through higher premiums.

How Dealerships Can Prepare for the Shift

The dealerships that evolve with the market will be the ones that thrive. Now is the time to adjust inventory strategies, optimize service operations, and reinforce customer relationships.

1. Focus on Fixed Operations and Service Retention

With rising new and used car costs, service departments will become even more critical in maintaining dealership revenue. Dealers should:

Emphasize OEM-trained expertise to differentiate from independent repair shops.
Offer service financing options to help customers manage higher repair costs over time.
Improve inventory management to ensure critical parts remain available, despite tariff-driven supply disruptions.

2. Adjust Pricing and Inventory Strategies

Stock more affordable models: As affordability concerns rise, customers will look for budget-friendly new and pre-owned options.
Enhance trade-in incentives: Tightening used car supply means that securing trade-ins will be crucial for inventory.
Prioritize financing solutions: Higher vehicle prices will lead consumers to prioritize monthly payment affordability—dealerships should partner with lenders to offer competitive leasing and financing options.

3. Strengthen Digital and Online Retailing

As more buyers shop online to compare pricing, secure financing, and evaluate trade-ins, dealerships must invest in digital solutions to stay competitive.

Ensure pricing transparency with real-time market comparisons.
Offer online trade-in appraisals and financing pre-approvals to streamline the purchasing process.
Optimize website and digital engagement tools to create a seamless shopping experience.

What Consumers Need to Know

Higher Prices on the Horizon

Approximately 50% of vehicles and auto parts sold in the U.S. are imported from Canada, Mexico, and China. The introduction of a 25% tariff on these imports will push manufacturers to raise prices to compensate for higher production costs.

Analysts estimate new vehicle prices could increase by up to $9,000, depending on the make and model.
Luxury brands and EV manufacturers will be among the most affected due to their reliance on imported parts.

Used Cars Will Become More Expensive

As new car prices rise, consumers will turn to used vehicles, creating higher demand and driving up costs.
Buyers should consider purchasing used cars sooner rather than later, before prices climb further.

Auto Insurance Rates Will Likely Increase

With tariffs affecting replacement parts, repair costs will rise.
Insurance companies will adjust premiums to cover higher claim expenses, leading to increased rates for consumers.
Some estimates predict insurance costs could rise by 8% in 2025.

The Future of the Automotive Industry in a High-Tariff Economy

For dealerships and consumers alike, tariffs will bring significant financial challenges. However, strategic adjustments can mitigate risks and create new opportunities.

Dealerships should reinforce their service and fixed operations, enhance digital engagement, and adjust inventory to meet evolving consumer needs.
Consumers must stay informed, shop strategically, and consider alternative financing options to navigate rising vehicle prices.

The automotive industry is changing, but those who plan ahead will be best positioned to succeed.

Tariffs and Their Impact on the Automotive Industry