On the Dash:
• Tariff costs will likely push vehicle prices higher.
• Vehicle prices have risen about 1% so far despite ongoing duties.
• Automakers face billions in tariff expenses with limited U.S. capacity to shift production.
Automakers may start increasing vehicle prices or reducing features in the coming months as tariff costs become harder to absorb, indicating potential affordability challenges for consumers and dealers ahead.
On a fourth-quarter earnings call last week, Sonic Automotive President Jeff Dyke said rising import duties are already forcing brands to reconsider pricing strategies. “The tariffs are too high on some of these brands, and they’re going to pass pricing on,” he said. “It’s already happening.”
Dyke added that while affordability pressures may not have been fully felt in early 2025, he expects the impact to become clearer by late spring and summer as manufacturers confront mounting cost burdens. He said manufacturers cannot continue absorbing billions of dollars in tariff expenses without eventually passing some of those costs to consumers.
Despite those concerns, industry data suggest that vehicle prices have not yet spiked dramatically. According to Edmunds data, average vehicle prices have increased roughly 1% since the latest tariffs were introduced.
“The industry is already operating in a challenging affordability environment, with elevated vehicle prices and persistently elevated interest rates making financing more expensive for consumers,” said Jessica Caldwell, Edmunds AVP of Insights. “If cost pressures continue to build, automakers may have less room to shield shoppers from higher prices — but for now, the broader market impact is still playing out.”
While the pricing impacts are relatively modest to date, consumer behavior has shifted. There has been a surge in shoppers researching used vehicles amid concerns that new-car prices will rise sharply. Caldwell also indicated that some higher-end models may have seen selective price increases, potentially as a strategy to offset tariff costs among less price-sensitive buyers. Incentives, however, have not yet seen significant reductions.
Trade policy uncertainty continues to cloud the outlook. Although the Supreme Court recently struck down certain reciprocal tariffs imposed under the International Emergency Economic Powers Act, sector-specific tariffs remain in place. As a result, automakers still face billions in additional costs depending on the origin of imported vehicles and parts.
Tariffs are already affecting automaker profitability. Toyota reported a 25% decline in net income during the first nine months of its fiscal 2026, citing tariffs as a major factor. The company said duties cost roughly 1.2 trillion yen, or about $8 billion.
While Toyota operates 11 U.S. factories and builds approximately 55% of the vehicles it sells domestically in 2025 at those plants, several high-volume and high-margin models are produced outside the United States. The Toyota Tacoma is manufactured in Mexico, and most Lexus models are built in Canada or Japan. Toyota’s U.S. facilities produced nearly 1.4 million vehicles last year and are operating at full capacity
Production shifts to the U.S. could help mitigate exposure, but available plant capacity remains limited. With trade negotiations among the U.S., Mexico, and Canada expected to conclude in July, some automakers might postpone significant manufacturing investments until the trade policy is clearer.
