Auto industry braces for tariff ‘adjustment period’

The auto industry is bracing for the short- and long-term headwinds from tariffs as President Donald Trump warned of 'adjustment period' in his prime-time address to Congress on March 4. “There'll be a little disturbance, but we're OK with that. It won't be much,” Trump said during the speech, later saying his election and trade policies will allow the nation’s “auto industry to absolutely boom.” The president’s address came on the same day that 25% tariffs against top trading partners Canada and Mexico went into effect and tariffs on China, the world’s second-largest economy, doubled to 20%. Today, however, Trump announced a one-month pause on tariffs for cars entering the United States from Canada and Mexico after speaking with representatives for General Motors , Ford Motor and Stellantis , White House Press Secretary Karoline Leavitt, said during a press briefing. The president also reaffirmed his threat to levy 25% tariffs on aluminum and steel set for March 12 , and to impose reciprocal tariffs beginning April 2. The president also reiterated his campaign pledge to make interest payments on auto loans tax-deductible for American-made vehicles. The moves are meant to encourage auto manufacturers to build vehicles in the U.S. Price pressure expected Still, short-term effects of tariffs may cause temporary pain for the auto industry. Trump’s tariffs would likely raise the cost of new cars by an average of $3,000 due to higher manufacturing costs, according to a Feb. 3 report by Wolfe Research , an independent research firm. A separate study by Anderson Economic Group found that producing a crossover utility vehicle would cost at least $4,000 more, while electric vehicle production costs could rise by three times that amount — costs that would likely be passed on to consumers. These price hikes come as the average new vehicle costs over $50,000, monthly loan payments exceed $700 and used car prices continue to rise. Regardless of the tariffs' long-term goals, their immediate impact includes financial strain for both automakers and consumers. “ I t's going to be a huge challenge for automakers, because they can't jack up prices 25%." -- Joseph Yoon, Edmunds ‘Can’t put an extra $3,000 into a loan’ Impending tariffs will exacerbate vehicle affordability challenges and make it harder for some borrowers to get auto loans, Peter Kitzmiller , president of the Maryland Automobile Dealers Association , told Auto Finance News . Some consumers are already priced out of the market and adding $3,000 to the price of a car , could create a significant problem, he said. “You can't put an extra $3,000 into a loan at this point,” Kitzmiller said. “That's just not going to work.” Many entry-level vehicles are built in Mexico, a segment in which sales are growing due to lower prices that could rise, he said. If an automaker “wants to pass the $3,000 onto the dealer, are we going to be able to pass that $3,000 onto the customer? I'm skeptical,” he said. "Everyone's going to take a bite.” Still, regardless of how tariffs might affect the supply chain and vehicle prices of vehicles , it won’t happen overnight, Joseph Yoon , consumer insights analyst at Edmunds , told AFN . Supply chains for manufacturing are set up years in advance, but prices can start going up rising within the next month or so , depending on how long tariffs stick, he said. “ I t's going to be a huge challenge for automakers, because they can't jack up prices 25%,” Yoon said. Wait and see Trump’s March 4 address provided more insight into his trade policy objectives, but significant uncertainty remains about what he aims to achieve and the duration of tariffs, prompting some dealers to adopt a "wait and see" approach. We are aware of the “recently implemented tariffs from the federal government that could significantly impact the U.S. auto industry and California,” Brian Maas , president of the California New Car Dealers Association , told AFN in a statement. "We are waiting to see if these will lead to higher vehicle prices. If so, the car buying process will become even more challenging, impacting consumer availability, choice , and affordability.” "We are waiting to see if these will lead to higher vehicle prices. If so, the car buying process will become even more challenging, impacting consumer availability, choice , and affordability.” -- Brian Maas, California New Car Dealers Association At the Gerry Lane Enterprises dealership group, which encompasses four GM dealerships in Baton Rouge, La., the plan is to continue business as usual as the tariff situation works itself out, Eric Lane , owner of the dealership group, told AFN . “It's going to be a cost of doing business to help this country to become stronger,” he said. “ If tariffs cause a little pain temporarily , other countries don't have the stay in g power to keep these tariffs up. T hey'll eventually cave in to what we want done . We're the ones holding the cars, not them.” Auto Finance Summit East 2025 is set for May 12-14 at the JW Marriott Nashville featuring fireside chats with Santander Consumer USA and Chase Auto. Visit autofinance.live for more information. Early-bird registration is available here .

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