Donald Trump's threat to raise tariffs could backfire and cause a financial and logistical nightmare for car buyers and makers, experts have warned.
The US President wants to impose 25% tariffs on Canada and Mexico as of February 1.
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Trump, 78, said after his inauguration on Monday that the huge tariffs “will make us rich as hell.”
But auto experts at Kelley Blue Book warned: “If Trump enacts the tariffs, car shoppers should expect dramatic and immediate changes.
He added: “Raising the cost of each part and each vehicle by 25% would raise prices.
“A consensus has emerged among analysts who study the industry: the price of the average car will rise by about $3,000.”
The United States is the second largest automobile market in the world.
But most cars sold in the United States include parts made in Mexico or Canada, which would be affected by excessive tariffs.
Kelley, an American vehicle evaluation and automotive research company based in Irvine, California, said motorists may not realize that even vehicles manufactured in the United States contain many Canadian and Mexican parts.
In the past, the MAGA leader has used the threat of tariffs to push automakers to move more production to the United States.
But his threat to impose tariffs will mean higher car prices for American consumers and hurt global automakers, according to Germany's leading automaker.
Foreign automakers currently manufacture cars in Mexico for sale in the United States.
Hildegard Müller, head of the German auto association VDA, warned on Tuesday that Trump's big tariffs would also lead to higher inflation in the United States.
The German Automotive Industry Association (VDA) consists of more than 620 companies engaged in production for the industry.
Mueller said: “Donald Trump promised in his election campaign to reduce inflation… and we hope for further discussions on this issue.”
Analysts told the New York Times that the tariffs would raise car prices and cost jobs in the short term.
The newspaper said on Tuesday that North American car companies have been operating across borders for three decades.
The New York Times reported that more than $1 billion worth of cars and spare parts cross America's northern and southern borders every day.
“Vehicles sometimes move back and forth between the United States and Canada multiple times during manufacturing,” she added.
Agency tips
Here are some expert tips when buying a car from a dealership:
- 1. Set your price: Make sure you have calculated your monthly budget before going for quantity. You must include the car loan payment, insurance costs, fuel, and regular maintenance.
- 2. research: Make sure you know which cars you want to test drive before arriving at the dealership.
- 3. Informed consent: Secure financing before going to the dealership. Agents may give you a better interest rate if they are competing with an offshore bank.
- 4. Test away: Get behind the wheel before making any payments. The car will be worth thousands of dollars to purchase – drivers should make sure they like the drivetrain, steering feel and comfort of the car before taking it out of the car
- 5. Bargaining: Drivers should always try to negotiate the price. There are a lot of good cars on the US market – buyers have strong power when negotiating price.
Source: Kelly Blue Book
“The tariffs will inflate car prices that many potential buyers already believe are too high,” Eric Gordon, a business professor at the University of Michigan, told the Times.
“Does that mean applying 25% every time a crossing is made,” asked Jonathan Smoak, chief economist at Cox Automotive, which owns Kelley Blue Book.
“Automakers could respond by shifting production to the United States, but that could take years and cost billions of dollars,” Kelly added.
Back off the electric car
There is also a great deal of confusion about precisely how the tariff is applied, and to what parts of the manufacturing process.
There is also a question mark over the impact this will have on the used car market and repairs, as many parts are not manufactured in the United States.
Experts noted that the threat of tariffs has further shaken the industry after Trump crushed Joe Biden's pro-electric vehicle campaign.
The president announced a rollback of his predecessor's electric vehicle goal afterward Biden82, Signed an executive order setting a goal for 56% of all new cars sold in the United States to be electric by 2032.
However, several automakers have already spent large sums on new factories to build electric vehicles in the United States
“US tariffs on Mexican auto imports will hurt American, European, Japanese and South Korean automakers and suppliers alike,” Reuters reported on Tuesday.
Republican partnerships
Automakers spent time negotiating with Trump's team before his inauguration, hoping to prevent the imposition of tariffs.
A company source said that John Elkann, president of Stellantis, Dodge's parent company, spent four days in Washington, meeting with Trump and senior administration officials.
Volkswagen has also been in close contact with the Trump administration to try to dissuade him from hitting the industry with massive tariffs.
Volkswagen and its German rivals Mercedes-Benz and BMW have plants in Republican states that voted for Trump, and all have affirmed their commitment to American production.
