Automakers can respond to President Trump's new 25% tariffs on imported cars and parts in several ways. But they all cost money and lead to higher car prices, analysts say.
Manufacturers can try to move production from countries such as Mexico to the United States. They can try to increase the number of cars they already make here. You can stop selling imported models, especially those that are less profitable.
But no matter what the automaker decides, car buyers can expect to pay more for new or used cars. Estimates vary widely and depend on the model, but the increase could range from around $3,000 for cars made in the US to well over the $10,000 for imported models.
Those numbers don't take into account additional tariffs Trump said he would announce next week to punish countries that impose tariffs on US goods. He also said that if trade partners like Canada and the European Union raise tariffs according to his car rates, leading to increased trade wars, they would increase tariffs.
“For several years, it will be disruptive and expensive for American consumers,” said Michael Cusumano, professor of business administration at MIT Sloan Management School.
Trump has been shaking tariffs around for a long time. However, many automotive executives wanted his threat to be a negotiation tool. Trump shattered those hopes when he said tariffs were “100%” permanent in the White House on Wednesday.
Trump has framed tariffs as a way to bring automobile manufacturing back to the US. The United Automobile Workers Union agreed, saying it could resume cars in places like Roadtown, Ohio, and expand production in cities like Warren, Michigan, where auto workers are being laid off.
UAW President Sean Fain said of Ford Motor and Stellantis, owners of Chrysler, Jeep and Ram, “it's in the automakers from the Big 3 to Volkswagen and others, to get good union jobs back to the US.”
However, moving the factory is expensive and time-consuming. Automakers usually need at least two years to set up new assembly lines and ensure that the vehicles they produce meet quality standards. To avoid tariffs entirely, they also need to relocate demonic complex supply chains, which often involve suppliers in many countries.
Tariffs can encourage businesses to choose a US location instead of Mexico or Canada when they are thinking about expanding production or building new models. However, choosing a site for customs duties will cost the consumer, not because it is the most efficient place to manufacture.
Some companies may be hesitant to make these decisions. These decisions can cost hundreds of millions of dollars. Or the next president can reverse his tariffs.
“What I've heard from many clients is, 'how to justify that capital expenditure without knowing whether this is a long-term process or not,'' says Kevin Williams, senior director of Clark Hill, a law firm specializing in trade. “You made that investment and two years from now, they say, 'Never mind.' ”
Automakers, some of whom refuse to comment, will likely avoid passing all the fees of customs duties on consumers. If they raise prices too much, sales can plummet, sink revenue, and lead to a death spiral of rising costs. Economists worry that the financial disruption caused by tariffs will help cause a recession.
Some automakers stock up parts and complete their cars before tariffs begin, but that only keeps the price down for a while.
“We've seen a lot of experience in the world,” said WC Benton, professor of operations and supply chain management at Ohio State University.
According to Cox Automotive, the new cars are already beyond the scope of many Americans. The average selling price has been above $48,000 recently. As more buyers are looking for affordable options, second-hand cars are expected to rise as well.
Most automakers are not very useful and have limited financial rooms to pilot. One of the more profitable companies, General Motors, earned a net profit last year on sales of 3.2%. As a result, automakers will have to pass much of the tariff costs to their customers.
In that case, tariffs could add $15,000 to the price of the RAM 1500 pickup, nearly $12,000 for the Toyota Tacoma pickup, $9,000 for the Subaru Forester SUV and $6,000 for the Nissan Centra Sedan.
Some automakers have already raised prices. Ferrari, which sells Italian-made sports cars for hundreds of thousands of dollars, said on Thursday it would raise prices for some models 10% in response to tariffs.
Automakers could suspend sales of less profitable models. They promote domestically built cars and trucks, many of which are bigger and more expensive. All major automakers, including foreign brands such as Mercedes-Benz, BMW, Volkswagen, Honda, Toyota, and other foreign brands, have large factories in the US.
However, since everything has foreign-made parts, the vehicle typically accounts for at least a third of the vehicle's value, so customs duties are not exempt. According to the Trump administration, that portion is subject to 25% tariffs.
“There's nothing like American cars,” said Simon Gear, executive vice president of Proxima, is a consulting company that advises businesses on procurement.
Some automakers may avoid making major changes to their operations in response to tariffs, betting that the Trump administration must retreat because the outcome is so severe.
“There will be an incredible backlash from American consumers,” said MIT's Kusumano.
Anna Swanson contributed the report.
