President Trump announces 25% tariffs on automobile imports
President Trump said the tariffs on automobiles will start at a 2.5% and go up to 25%, and will go into effect April 2nd.
- Many analysts believe the tariffs will be met with retaliation and won’t stick due to dramatic cost increases.
- Dealers have adequate supply of vehicles for now.
- Experts predict there will be manufacturing shifts by automakers.
The fallout was still settling over the auto industry Thursday morning — just hours after President Donald Trump signed an executive order imposing 25% tariffs on all vehicles imported into the United States — as car dealers, analysts and industry leaders struggled to make sense of how this new cost will impact them.
The confusion is around the fact that, even though American-made vehicles are exempt from a tariff, there is no such thing as a truly American-made vehicle. Even the most American-made car contains a good percentage of parts imported from other countries. Those parts could now be subject to 25% taxes paid by the importers, in this case the car companies, to bring them over the U.S. border. Parts that comply with the United States-Mexico-Canada Agreement are exempt, but only for now.
On Thursday, many analysts said they believe these tariffs cannot realistically stick, even though Trump insisted they are permanent. And many experts struggled to predict the ultimate impact it could have for automakers, suppliers and even consumers because of uncertainty around to what exactly the tariffs will apply and how they will be implemented.
“We’re assuming that they’re going to go by percentage of content and the tariff will be on that portion of it, but I’ve heard nothing from the factory yet because I assume they’re still scrambling to figure out what is happening,” said Gordon Stewart, owner of car dealership Gordon Chevrolet in Garden City.
One thing seems unanimous among analysts, however: No matter where the car is made, these tariffs will increase the price of new cars by thousands of dollars because automakers cannot absorb all of the cost increases the tariffs will bring. The notion of shifting parts production to the United States is not realistic because many parts cannot be made here. In addition, it costs billions of dollars and takes at least three years to build a new factory.
“If truly ‘permanent,’ a 25% tariff on all imports into the U.S. market would represent a significant (if not unprecedented) increase in the prices of cars, effectively inflating the average price of a vehicle by 11% or 12% (all else equal) and raising the average monthly auto loan payment from approximately $750/month to $830 or $840/month,” wrote Morgan Stanley autos analyst Adam Jonas in a Thursday morning research note. “Actual impact will depend on a number of factors, including the role of finance subs (and captives) on leasing and loan terms. This will be the first and most obvious reaction to a tariff implementation of this magnitude.”
Longer term, Jonas said, the tariffs could create the “Cubanization” of vehicles in the States, referring to how in Cuban people keep their cars for many years, sometimes decades, because buying a new car is so expensive because of a U.S. trade embargo.
Examples of US made cars impact
The Detroit Three automakers declined to comment, referring the Detroit Free Press, part of the USA TODAY Network, to a statement by the American Automotive Policy Council, the group that represents the automakers in Washington.
“U.S. automakers are committed to President Trump’s vision of increasing automotive production and jobs in the U.S. and will continue to work with the administration on durable policies that help Americans,” said former Missouri Gov. Matt Blunt, president of AAPC, in the statement. “In particular, it is critical that tariffs are implemented in a way that avoids raising prices for consumers and that preserves the competitiveness of the integrated North American automotive sector that has been a key success of the President’s USMCA agreement,” a reference to the U.S.-Mexico-Canada Agreement negotiated during Trump’s first term.
New car prices are expected to rise, experts predict. An example: BMW produces the X5 sport utility in Spartanburg, South Carolina, said Sam Fiorani, vice president of global vehicle forecasting at AutoForecast Solutions. He said this model is one of the biggest exports in the United States auto sector with roughly 40% of production headed for outside markets. Currently, more than 68% of the vehicle’s components are imported, including the European-made engine and transmission.
“An applied tariff of 25% on those parts would add around $8,000 to the cost of making this vehicle and reducing the demand considerably as BMW would be forced to increase its price to all markets,” Fiorani said.
Similarly, while Dearborn-based Ford Motor Co. assembles 80% of the vehicles it sells in the United States domestically, it does get parts from other countries that go into those vehicles. It also sells vehicles made here in other countries. The Ford F-Series Super Duty pickup, for example, is assembled in Louisville, Kentucky, but all the gasoline V8 engines come from Windsor, Ontario, and the diesel V8s in it are made in Mexico, with other assorted parts also imported including the aluminum for the bodies, said Sam Abuelsamid, vice president of Market Research at Telemetry Insights.
Abuelsamid predicts the tariffs will drive the average new vehicle price up by 15%, he said.
Jeff Windau, industrials analyst at Edward Jones, told the Free Press that the Detroit Three are hurt somewhat less by the tariffs than are their foreign counterparts.
“I would say they are all global companies and they do sell abroad, so you’ll start to see (retaliatory tariff) actions taken abroad that make them less competitive in these international markets,” Windau said. “They’ll have to look at their manufacturing footprint and supply chain and have to move some things around … which will probably raise prices for consumers and pressure sales in the industry. I feel everybody will be impacted.”
Deutsche Bank’s Edison Yu agreed that manufacturing shifts will be needed. In a research note Thursday, Yu wrote: “Even if the tariffs are modified and/or exemptions are granted, the industry may not return to the status quo for the next four years.”
Yu wrote that Tesla, which makes the most purely American-made vehicles, and Ford, are the most shielded from the tariffs, although Ford faces incremental exposure on imported engines.
Ford CEO Jim Farley said in February that enduring 25% tariffs “would blow a hole in the U.S. industry that we’ve never seen.”
“GM has the most exposure to Mexico,” Yu wrote. “On the suppliers, virtually all will be subject to the derivative impact of tariffs, in our view. We expect OEMs to evaluate footprints against model/profitability and assess production levels to align with economic sensibility, causing … lower net volumes.”
Less production means fewer factory jobs.
‘Trying to hit a dancing target’
At Gordon Chevrolet, Stewart said he has about a 40-day supply of new cars on the ground, so he’s not worried yet about the impact from the new tariff.
“With all the fluctuations that have happened in the last 30 days, I’m not panicking yet,” Stewart told the Free Press. “All the uncertainties we’ve seen, I think everything is subject to change. There are still negotiations going on with Mexico. We’re, and by we, I mean General Motors, is still trying to hit a dancing target.”
Similarly, auto analyst Dan Ives of Wedbush Securities pointed to the stock market Thursday morning where stock prices for the Detroit Three were taking a beating. He said the market is calling Trump’s bluff.
“They’re saying this is in pencil not pen,” Ives told the Free Press. “This (tariff) is not possible. The reality of enacting this is impossible. It’s a fictional tell. Even an American car made in America with American workers has foreign parts. There are parts of engines and parts of chips where they don’t have the parts in the United States, and it takes three years to build a factory. So how’s that going to work?”
Ives predicts that new vehicle prices could rise by $5,000 to $10,000 to offset what automakers and suppliers will pay in tariffs either to import vehicles or parts. He derived that figure by looking at “the parts sourced from the average car and half the cars in the United States are imported and 60% to 70% of cars have auto parts that are foreignly sourced.”
He said his team estimates the tariffs will add $100 billion to $125 billion in costs across the entire auto industry.
Protect the rich, annex Canada?
In early March, Trump postponed auto tariffs for 30 days. But on Wednesday, he said no more pauses in tariffs for the auto sector. “This is permanent, 100%,” he said.
Trump said his executive order would force more automakers to move into the country and create jobs. The tariffs will take effect on or after 12:01 a.m. EDT April 3 for automobiles, and on the “date specified in the Federal Register for automobile parts,” but no later than May 3.
Trump said the tariff will help the auto industry to “flourish” and create new jobs as factories will start springing up stateside. An aide said the tariffs are expected to produce $100 billion a year in revenue for the federal government. Trump pegged it at potentially more than six times that over two years. That revenue could help to offset Trump keeping in place tax cuts passed in his first term, which are due to expire Dec. 31.
But the move also is an assault on Canada, which Trump is insistent about annexing in some fashion. Former Canadian Prime Minister Justin Trudeau told Trump 25% tariffs would destroy Canada’s economy.
In an emergency news conference Wednesday evening, Canadian Prime Minister Mark Carney condemned Trump’s announcement as a “direct attack” on Canada’s autoworkers.
“We have put in place the mechanisms where, if it is appropriate to put in place retaliatory tariffs … we will take the steps that are in the interests of Canadian workers,” Carney, who has called a snap election for April 28 after taking over for Trudeau. “We are entirely aligned in terms of the seriousness we are taking this and the seriousness of our response.”
A Ford factory in Canada, devastated
John D’Agnolo had a headache, a real, physical headache, Thursday morning from processing the tariff news.
D’Agnolo is President of Unifor Local 200 in Windsor. His local represents some 2,000 workers at Ford’s engine plants, which supply many of the engines used in the F-Series pickups that are made in Michigan, Ohio and Kentucky.
He told the Free Press Thursday that Trump’s tariffs imposed on Canada are completely unjustified.
“I am looking at what we continuously do, everything we’ve done in Canada to support the United States. It is a fair trade agreement, what we have today,” D’Agnolo said. “These are additional costs and it makes no sense.”
He said Trump’s move hurts U.S. citizens beyond autos. He said the connection Canada has with Michigan, its border locale, is like no other and it is being damaged.
“It makes me sick that he’s doing this to Michigan to be honest, because now we’re not going there anymore,” D’Agnolo said. “Who wants to isolate a country like that and destroy those businesses? This is more than about autos. I spent more money in Michigan than anywhere, I love that state. This is devastating.”
He points to the fact that in 2024, Ford sold 134,000 F-Series pickups in Canada, all of which were made in the United States.
“I built the engine, but the trucks are all built there (in the United States),” D’Agnolo said. “How am I ripping them off? We don’t build these vehicles in Canada and thousands of vehicles are built in the United States and I’m ripping him off? Am I frustrated? Yes. Is he lying? Yes. All it’s doing is destroying lives on both sides of the border.”
D’Agnolo said Canada will be forced to protect itself by implementing retaliatory tariffs or requiring any vehicles sold in Canada be built in Canada. In the meantime, he is more worried than ever that Trump is serious about annexing Canada because “he needs our natural resources.”
“That’s why he’s looking at Greenland, looking at Ukraine,” D’Agnolo said. “We could build a chip plant in our country no problem because we have the resources to do that. He realizes battery is coming. He needs the lithium, we have the nickel and we have the cobalt. All the things he needs to make these batteries are in Canada.”
Lower sales forecast
The sales of new cars have held up through all of this volatility so far, but most experts predict the tariffs will start taking a toll.
At the beginning of March there were 2.99 million new vehicle across the United States in inventory, said Mark Schirmer, spokesman for Cox Automotive. That is down slightly from the 3.2 million at the end of November, “but is a pretty healthy number,” he said.
It has to be, because Chevy dealer Stewart said there is no way GM or any automaker could move fast enough to get dealers considerably more vehicles in stock in just a week. With the “just-in-time production” system at factories, it would be difficult for automakers get enough parts to the assembly lines to significantly speed up production by April 3, he said.
Charles Chesbrough, senior economist at Cox said now that the tariffs are out, “I think we will see a stronger finish to March than we had expected (in sales), and prices will begin rising, but not on everything and not all at once. Each dealer and market will approach this differently at first.”
Chesbrough said new car sales in the second quarter will be slower than in the first quarter, and “if these tariffs stick, the second half of 2025 will see obvious changes in prices and sales pace.” On Wednesday, Cox lowered its full-year new vehicle sales forecast by 700,000 to 15.6 million due to tariffs disrupting the industry.
On Thursday, Edmunds.com forecasted that 3.8 million new vehicles will have been sold in the United States in the first quarter, a 1% increase from the year-ago period.
“Inventory levels were healthy for many brands, incentives continued to make a comeback, and there was clear evidence of pent-up demand after the sluggish sales years that followed 2020,” said Jessica Caldwell, Edmunds’ head of insights.
She said automotive tariffs might have pulled ahead some vehicle purchases, but results were largely driven by the strength of the industry’s underlying fundamentals. The “road ahead is less certain,” she said.
“Looking ahead, the newly announced 25% tariffs on imported vehicles add another layer of difficulty for shoppers already facing high prices and interest rates,” said Ivan Drury, Edmunds’ director of insights.
‘Customers should act now’
According to Edmunds.com the average transaction price for new vehicles in February was $47,373 and the average sticker for new vehicles was $49,350, making the average discount for new vehicles $1,977. The average transaction price for used vehicles was $25,005.
“Shoppers should expect increased competition on dealer lots as news of the tariffs will likely fuel short-term demand from buyers trying to lock in deals before potential price hikes,” Drury said. “If you’re planning to buy soon, it’s worth starting your search now. Once tariffs take effect, discounts will be harder to come by and, if spending a bit more today gets you the car you really want, it could save you money in the long run.”
Indeed, Matick Automotive Group Partner Paul Zimmermann told the Free Press he has about a 60-day supply of GM vehicles at Matick Chevrolet in Redford Township and Matick Buick-GMC in Southfield. At his Matick Toyota store in Macomb, he has a 40-day supply. While both are good levels of inventory, Zimmermann said, “Customers should act now.”
He is confident in GM and Toyota leaders to have contingency plans to keep dealers supplied, and the “customer base will be protected as they navigate through the changes,” Zimmermann told the Free Press. But he said, “I now think these (tariffs) will be in place longer than I originally thought. Quantifying amount of content built in the U.S. as well as maybe moving some production back to the U.S. might have to be done in an effort to alleviate the tariffs.”
Jamie L. LaReau is the senior autos writer who covers Ford Motor Co. for the Detroit Free Press. Contact Jamie at jlareau@freepress.com. Follow her on Twitter @jlareauan.
