The auto industry is currently grappling with the financial repercussions of tariffs imposed on imported materials and vehicles.
Higher taxes on imports such as aluminum and steel have significantly increased material costs for car manufacturers.
Additionally, tariffs on foreign-made parts and imported vehicles have been as high as 25% since the spring.
Although recent trade deals with Japan and the European Union have slightly reduced these fees, the tariffs still sit at a heightened 15%, which is considerably higher than in previous years.
Despite these challenges, consumers have not yet felt the financial heat.
According to data from Kelley Blue Book, new-vehicle transaction prices only rose by 1.2% year over year in June.
This modest increase is actually less than the annual average growth witnessed over the past decade.
Erin Keating, an executive analyst for Cox Automotive, which owns Kelley Blue Book, finds this trend surprising but beneficial for consumers.
One reason for this is that when the tariffs were implemented, inventories at dealerships were still flush with vehicles that had been imported without the additional taxes.
Moreover, as consumers raced to purchase cars ahead of rising costs, manufacturers used this opportunity to attract buyers by delaying price hikes.
Car companies were mindful that if they raised prices too quickly, they risked alienating shoppers who were already facing financial strain.
Ivan Drury, Director of Insights at Edmunds, emphasizes that the average new car price is nearing $50,000, while used cars hover around $30,000.
This has resulted in a record number of new car buyers facing monthly loan payments exceeding $1,000, with many owing more on their vehicles than their worth.
Coupled with high-interest rates and insurance costs — both of which have been worsened by tariffs — affordability concerns are mounting.
As Drury notes, the strategy of automakers has been to minimize price adjustments in reaction to tariffs.
For now, major automakers are absorbing the costs.
In recent investor calls, companies such as General Motors have outlined their tariff expenses over the past three months: $1.1 billion for GM, $600 million for Hyundai, over $500 million for Kia, and $1.5 billion for Volkswagen.
Stellantis, which oversees brands like Chrysler, Dodge, Jeep, and Ram, anticipates incurring approximately $1.7 billion in tariffs for the year.
Despite these significant tariff-related expenses, companies like GM, Hyundai, Kia, and Volkswagen have managed to remain profitable.
In contrast, Stellantis has been facing losses that extend beyond the tariff issues.
However, these companies are under pressure from investors to stop absorbing these increased costs indefinitely.
Some automakers are responding by relocating more production to the United States.
Volkswagen’s CEO Oliver Blume hinted at the prospect of manufacturing Audi vehicles in the U.S., illustrating a potential shift in production strategy.
Currently, Volkswagen builds its Volkswagen models in Chattanooga, Tennessee, but does not produce any Audis domestically.
Additionally, GM is transferring production of the Chevy Blazer from Mexico to Tennessee.
Another approach some companies are examining is to decrease costs elsewhere in their supply chains or shift more financial burdens onto their suppliers.
Ultimately, executives have indicated that price increases for consumers are inevitable.
Stellantis Chief Financial Officer Doug Ostermann mentioned during a recent investor conference that the company sees opportunities to make adjustments on pricing.
When automakers discuss “progress on pricing,” it usually signals an intention to implement higher prices rather than offering discounts.
Both Edmunds’ Drury and Cox Automotive’s Keating anticipate that as the 2026 model year vehicles roll into showrooms in the coming months, a natural spike in prices will occur.
Keating has shared calculations predicting a price rise between 4% and 8%, with the higher figure representing a threshold beyond which cars may become uncompetitive.
In addition to a rise in sticker prices, Drury also expects subtler cost transfers to consumers, such as a decrease in low-interest financing offers or reduced cash-back incentives.
Change is coming, and the auto industry is preparing for its next chapter amidst these turbulent economic changes.
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