How Trump’s tariffs will effect everyday prices
With new tariffs on imports, several everyday goods are likely to become more expensive for American consumers. Cars and auto parts, many of which are produced through an integrated North American supply chain, will see price increases as manufacturers adjust to higher costs.
unbranded – Newsworthy
The car and truck market is about to get worse, and not just because of tariffs.
New car sales bottomed out in 2022, the peak year of COVID-19 era shortages that hobbled assembly lines. Now, that slow year for new cars is coming back to haunt used car shoppers.
The three-year-old vehicle is widely regarded as the gold standard for used automobiles. After three years of life, a car or truck is old enough to have depreciated sharply in value, but young enough to have many good miles left in the tank.
And in 2025, three-year-old vehicles will be in short supply.
Edmunds, the car-shopping company, predicts 2025 will be a historically bad year for three-year-old cars. The reason: 2022 was a bad year for new cars, with sales of 13.8 million. That’s the lowest figure since 2011, when the nation was recovering from the Great Recession.
“We kind of have known since COVID that that was an impact that was coming,” said Brian Moody, executive editor of Kelley Blue Book and Autotrader.
Car and truck leases plummeted in 2022
Edmunds predicts that leased vehicles, in particular, will all but vanish from used car inventories in 2025.
Car and truck leases plummeted in 2022. Three years later, Edmunds expects leased vehicles to make up only 18% of used car sales in 2025, the lowest figure since the Great Recession era.
Between 2019 and 2022, the annual volume of used vehicles coming off of leases topped 4 million. This year, Edmunds forecasts that figure to plummet to around 2 million.
“A lot of those aren’t coming back, because they weren’t leased in the first place,” Moody said.
Edmunds predicts that other “gently used” vehicles, too, will be scarce in 2025.
“If you are going to be in the used car market in 2025, you will come across far fewer nearly new used vehicles, vehicles that are two years old, three years old, four years old,” said Ivan Drury, director of insights at Edmunds.
Vehicles that are two, three or four years old are in perennially high demand. Most are still under warranty, but their value has depreciated enough to make them a comparatively good deal.
Used car crunch couldn’t come at a worse time
This inventory crunch could not come at a worse time. The average price for a new vehicle in January was a near-record $48,118, according to Edmunds. The average used vehicle cost a more modest $24,402.
And the Trump administration enacted a round of new import tariffs on Tuesday, inflaming a trade war with its top trading partners, including Canada and Mexico.
Of all new 2025 U.S. vehicle sales through February, 17% were built in Mexico, 7% in Canada and 27% in other foreign countries, according to Edmunds. Even if a car is built in the United States, some of its parts may come from other countries.
On Wednesday, Trump said he would exempt automobiles from the new import tariffs against Canada and Mexico for a month, which buys U.S. automakers and dealers some time.
“A one-month exemption offers a welcome reprieve, but the looming threat of tariffs still hangs over the automotive industry like a dark storm cloud,” said Jessica Caldwell, head of insights at Edmunds.
If tariffs hit showrooms, the cheapest vehicles may get hit the hardest.
“We think that 40% of vehicles priced under $40,000 would have a direct impact from tariffs,” Moody said.
New car prices, especially, are apt to rise under the Trump tariffs.
“It shouldn’t impact used cars that much, unless people start buying used cars because they can’t afford new cars,” said David Bennett, manager of repair systems at AAA. Higher demand for used vehicles will push their prices up.
Tariffs could also translate to fewer dealer incentives, including discounts and low-interest finance offers, automotive experts said.
With gently used vehicles in short supply this year, here are a few alternatives for prospective buyers.
Buy an older vehicle
One reason why car and truck buyers love three-year-old vehicles is that they don’t typically need a lot of repairs. An old rule of thumb suggests that a used vehicle really starts to show its age at around five years.
But that’s no longer so true. In fact, the average vehicle on American roads is now nearly 13 years old.
“Things have gotten a lot better with durability,” Drury said. “Your motor’s going to keep going.”
Buy a luxury vehicle
Although used cars may run scarce this year, customers could see more inventory at the high end of the market. Luxury vehicles represented an unusually large share of new vehicle sales a few years ago, Moody said.
If you’re willing to consider an older vehicle, a luxury brand can deliver value, because high-end vehicles tend to depreciate more quickly than lower-priced alternatives.
“I might be perfectly happy to have a 5-year-old Mercedes-Benz, because for me, this would be the nicest car I’ve ever had,” Moody said.
Buying a used electric vehicle is another option, because depreciation on EVs is “crazy high,” said Alex Knizek, associate director of auto test development at Consumer Reports.
Buy a new vehicle
Gently used cars and trucks will fetch such a premium in 2025, Drury said, that buyers will be “butting up against new car pricing.”
In some cases, the new car may be a better deal.
Dealers typically discount new car prices by $1,500 to $2,000, according to recent data. Auto loan interest rates tend to be lower for new vehicles, and dealers sometimes offer promotional rates in the 2% range or lower.
By contrast, the average interest rate for a used car loan is about 11.3%, Edmunds reports.
“Our intuition says that buying used is always cheaper than new,” Knizek said, “but it may not always be the case.”
