Car prices rose 45% during the pandemic. The period measured to get that number was from 2019 to 2024. Virtually all of that came between 2019 and 2021, when supply chain constraints brought on by the disease drove car inventory down sharply. Some dealers charged well over the manufacturer’s suggested retail prices. Call it greed. They called it a way to make more money. Today, the price of a new car is just short of $50,000, according to Cox Automotive.
The 25% tariffs the Trump administration is setting on imports from Canada and Mexico will tighten the supply of auto parts and autos considerably, and quickly. Car parts and cars are second among goods and services sent to the United States by Canada. Only oil and minerals are ahead of it. Ford Motor Co. (NYSE: F) and General Motors Co. (NYSE: GM) both have large plants there.
Cars and car parts are Mexico’s largest category of goods sent to the United States. Ford, GM, Honda Motor Corp. (NYSE: HMC), and Toyota Motor Corp. (NYSE: TM) have plants in Mexico. Each car from those manufacturers will be hit with tariffs.
TD Economics puts the initial hit on U.S. car prices due to tariffs at $3,000. As the scarcity grows, the problem will worsen. If the increase is anywhere near what it looks like during the pandemic, the price increase to $10,000 could happen by the end of the year.
One reason for the sudden price increase is how long a car stays on a dealer lot after it is delivered. The figure is between 60 and 90 days, according to AutoTrader. At that point, without new inventory, their supply of vehicles shrinks considerably.
Finally, one aspect of the COVID-19 pandemic is that dealers overcharge for cars compared to what the manufacturer listed as the maximum prices. Manufacturers objected. Many dealers ignored that.
Car prices will go up if Canadian and Mexican tariffs last for much more than a month or two. For a consumer, it will be like during the high point of the pandemic.
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