Spending Wisely A big unknown is about to hit the auto industry – and depending on how it comes out, we could all feel the effects.
Last week, President Donald Trump announced a planned 25% tariff on imported automobiles and automobile components. This tariff is currently set to take effect on Thursday.
I (Brady Holt) have read a lot of scary-sounding articles about this tariff plan, like how it will ruin the auto industry... And I've seen plenty of comments from folks who assume the tariffs won't hurt them. As the auto expert on Doc Eifrig's team, I'm writing today to explain what could happen as a result of this tariff plan... what probably won't happen... and the many points that remain up in the air.
I'm not here to talk about the politics of a tariff policy. Instead, I want to focus on what this tariff could mean for our Health & Wealth Bulletin readers. And I can say that if auto tariffs go forward as currently planned, nearly everyone reading this will see their car-related costs rise.
Here's what will happen if this tariff goes into effect...
New Cars Will Cost More
Tariffs aren't direct taxes on consumers. They're taxes on the companies importing goods. In this case, Trump's current plan is that when a car or auto part enters the U.S., the importer must pay a tax of 25% of its value.
Most of the time, these companies pass much of these costs on to consumers. Automakers' average 7% profit margin doesn't let them absorb a 25% tariff forever.
I've read that some people say they'll avoid the problem by only buying American cars. That's not as easy as it sounds.
First, nearly half of the cars sold in the U.S. were built in another country. That includes many popular models from domestic automakers... such as the Chrysler Pacifica van (Canada), Ford Maverick pickup (Mexico), and Chevrolet Trax crossover (South Korea).
Tesla is the only major automaker that manufactures all its cars in the U.S. But U.S.-made Teslas still include imported parts that will face a 25% tax. So do all other cars built here.
The tariffs are particularly bad news for affordable cars. Of the 10 least-expensive cars sold in the U.S., only one (the No. 10 Toyota Corolla) is assembled in the U.S. And American workers build it from a large number of imported parts, including its Japanese-built transmission.
What's more... when tariffs hit the auto market unevenly, the laws of supply and demand will take effect. Say a Mexican-built Chevrolet Equinox crossover faces a steep tariff while the competing U.S.-assembled Hyundai Tucson is taxed less. If the Equinox's price rises, Hyundai or its dealers could charge more for a Tucson while still undercutting the competition.
Economics wouldn't allow a big gulf to emerge between the two SUVs' values. Market forces dictate that somebody would pocket most of the difference.
What We Don't Know About New-Car Prices
We don't know exactly what the tariffs will cost Americans, or when. While the tariffs are slated to go into effect like the flip of a switch, car prices will move more slowly.
The mainstream media has been publishing estimates of tariff impacts that basically say, "If a car costs $50,000 and gets a 25% tariff, it'll now cost you $62,500: the original price plus 25%."
It's not as simple as that.
Your local Mazda dealer isn't going to charge 25% more for a CX-5 crossover that arrives from Japan on Thursday than one that arrived yesterday. As before, market forces would likely cause them to meet somewhere in the middle.
We've read estimates of the average new car getting anywhere from $4,500 to $15,000 more expensive. But nobody knows for sure how much prices would rise, or how soon.
Automakers may also decide to eat the cost of the tariffs for a while. We've seen that in the past with rapid price changes.
When the U.S. hit Chinese-built electric vehicles ("EVs") with a 100% tariff last summer, it effectively doubled the price of the lineup from the carmaker Polestar. But the company elected to pay the tariff without raising prices for consumers... keeping sales steady while it finished building a factory in South Carolina, which opened a few months later.
Meanwhile, Volvo responded by paying the tariff on a handful of EX30 electric SUVs, delaying the vehicle's full-scale American rollout, and starting to build U.S.-bound EX30s from Belgium a few months later.
So in the short term... prices likely won't jump by double digits. But if the tariffs stay as currently planned, all new cars will likely rise in price.
How much? We don't know.
In the medium term, automakers with capacity at existing U.S. factories would likely shift more production here. That would also likely raise prices versus building the cars elsewhere.
How much? Again, we don't know.
Automakers would also likely drop some models from their lineups... or settle for selling fewer of them at higher prices. Remember how I mentioned that most of America's cheapest cars are imported? Expect some cars on that list, and various others, to disappear from U.S. showrooms.
How many? You guessed it. We don't know.
In the longer term, Trump hopes automakers will build more factories in the U.S. Some likely will. But it takes years to plan and construct a new auto plant. These new facilities and highly paid U.S. workers would also raise car prices.
How much? We really don't know.
Used Cars Will Cost More
I've read some comments from folks saying, "I'm not worried about tariffs on new cars because I buy used cars."
As we saw during shortages of new cars during the pandemic, though... when new cars get more expensive, used cars follow suit.
It's market forces again. Whenever buyers all decide "this new car is too expensive," they all start competing for used cars and driving up the price.
Even keeping your current car wouldn't save you. When it costs more to buy a new car and it costs more to buy a used car, guess what else rises... car insurance. When it costs more to replace your car after a crash, the insurance company jacks up your premium to cover the expense.
What Trump Will Do Next
Throughout today's Health & Wealth Bulletin, I've said "if" the current tariffs remain. That's a big "if."
Trump said the auto tariffs would be "permanent." He also said that he's feeling more "lenient" on tariffs. He also threatened additional tariffs that would be on top of these 25% levels.
All of these statements came in just the past few days.
Trump has already delayed the auto tariff once at the last minute. He may raise or lower them in response to the public's response... if he sees progress toward his manufacturing goals... or to pursue other policy goals. And, as I write, he's planning a major tariff announcement tomorrow. But we don't know exactly what form of tariff(s) that announcement could cover.
The automotive market is unstable, with no one – automakers, dealerships, and consumers – quite sure what is going to happen.
But if auto tariffs take effect on schedule and stick around for the long term, it will raise prices.
Be prepared to pay more for your next car... whether it's a U.S. brand or a foreign one... whether it's built in the U.S. or imported... whether it's new or used... and whether it's a new purchase or just insurance on your existing car.
What We're Reading...
- Something different: The Ford executive who kept score of colleagues' verbal flubs.
Here's to our health, wealth, and a great retirement,
Brady Holt with Dr. David Eifrig
April 1, 2025