The U.S. auto industry won temporary relief from 25% tariffs on Mexico and Canada as it considers supply chain and production changes. The cost impacts to car buyers are anything but certain with other import duties already in effect and more on the horizon.¹

U.S. tariffs on China were doubled to 20% in early March while so-called reciprocal tariffs on any U.S. trading partner are slated to begin in early April.² Other duties aimed at raw materials — including a 25% tariff on steel and aluminum — could take effect as early as March 12.³

The tariff activity has both car buyers and automakers bracing for higher prices, but the complex nature of car production and global supply chains has made it difficult to pinpoint costs.⁴

The 25% duties on Mexico and Canada alone could add between $4,000 to $12,000 to car sticker prices, with larger models and electric vehicles potentially seeing some of the biggest hikes.⁵ The tariffs took effect March 4 for many imported goods, but autos and parts were given a one-month exemption the next day.⁶

Potential price increases from those and other tariffs come as consumer confidence wanes on big-ticket purchases and the average price of a new car nears $50,000. But prospective car buyers might not be hitting the brakes just yet.⁷    

Read more: Capital markets perspective: No mas.

Ahead of the curve 

Some consumers accelerated their car buying plans at the end of 2024 to get ahead of tariffs, while others still hope to make purchases early this year to avoid any extra costs.^8,9

U.S. car dealers have a two-month supply of new vehicles on average, with some brands like Ford and Lincoln carrying up to three months of stock. But prices on already-imported cars might see their own increases if dealers are cautious with their inventory amid tariff uncertainty.¹⁰

Some car makers have hinted that they will shoulder tariff costs for at least a month or two before raising sticker prices, with hopes that some tariff disputes might be resolved.^11,12

Higher sticker prices might send car shoppers to used car lots for more affordable options, but supplies have been low since the pandemic. The average sale price last month reached about $25,500, with further increases expected from potential long-term tariffs.¹³

Empower research shows that 57% of Americans are already holding onto their cars longer due to increased ownership costs from inflation and other factors.

Long-term tariff hikes could have downstream effects on car repairs and auto insurance premiums. Six out of 10 replacement parts are imported into the U.S.¹⁴ More than 20% of damaged cars were being written off by insurance claim adjusters prior to tariffs, mainly due to high repair costs.¹⁵   

Read more: Driving costs race ahead: Auto insurance, fuel and car prices on the move

Busy borders 

Much is at stake for automakers. The sector is the largest component of trade between the U.S., Canada, and Mexico, with materials, parts, and assembled cars making up 22% of total trade between the three countries.¹⁶

The North American auto industries are heavily integrated with very few models having more than 50% of their parts and materials sourced from a single country.¹⁷

The aluminum casings in a Chevy Silverado’s suspension typically cross North American borders five times before the parts are finished and installed at an Indiana plant.¹⁸ About half of the Silverados sold last year were built at U.S. factories, while 30% were built in Mexico, and 20% in Canada.¹⁹

It’s a similar story for many U.S. models, including electric vehicles. Tesla models sold in the U.S use components sourced from China, Canada, and Mexico.²⁰

Battery-powered EVs could see some of the biggest price jumps from long-term tariffs because they use more steel and aluminum than conventional cars, along with copper, which also faces potential tariffs.²¹ EVs also use significant amounts of imported minerals like lithium, nickel, cobalt, and graphite.²²

Changing course 

Higher prices might depend on whether the auto industry can obtain long-term tariff waivers, exemptions, or reductions. For example, a car imported from Canada that contains 40% U.S.-made parts might only pay the tariffs on the remaining 60% if certain exemptions are won.²³

If robust tariffs get in place for the long run, car makers could be forced to find new sources for parts or consider relocating factories. But those choices aren’t simple to make. The average new car has approximately 30,000 parts, including nuts and bolts.²⁴

Many companies have production cycles of at least five years to design, test, develop, and manufacture new cars. A change in policy or tariffs often makes it both difficult and costly to change course quickly.²⁵

Honda has reportedly decided to produce its new Civic hybrid in the U.S. instead of Mexico, but production won’t begin until 2028.²⁶ Other car makers have discussed moving more of their factories to the U.S. but haven’t tipped their intentions.²⁷

Read more: Tariffs have companies on their toes. Here’s how they’re keeping pace