Impending tariffs on Canada and Mexico could drive up U.S. car prices by as much as $12,000, intensifying financial strain on consumers and disrupting the complex automotive supply chains that span North America.
A new study by Anderson Economic Group, a Michigan-based automotive consultancy, found that the cost to manufacture a crossover utility vehicle could rise by at least $4,000, while the increase for an electric vehicle could be three times higher. These costs would likely be passed on to consumers, further tightening the affordability crisis in the auto market.
"That kind of cost increase will lead directly—and I expect almost immediately—to a decline in sales of the models most affected by trade," said Patrick Anderson, CEO of Anderson Economic Group, in an interview.
The proposed 25% tariffs on Canadian and Mexican imports would further squeeze consumers, at a time when sticker prices are already nearing $50,000 on average—a 20% increase over the past five years. The situation also raises questions about Trump’s promises to curb inflation, as consumer confidence dips to a four-year low, partly due to concerns over his import tax policies.
After a brief pause in negotiations, President Donald Trump announced Monday that there is “no room left” for a trade deal with Mexico or Canada, confirming that the tariffs would take effect Tuesday. He has largely dismissed industry warnings, even as top automakers—General Motors, Ford, and Stellantis—have cautioned that the levies could cause significant damage to sales, profits, and jobs.
According to sources familiar with the matter, top executives from GM, Ford, and Stellantis recently held a Zoom meeting with the U.S. Commerce Department to stress the economic risks of the tariffs. Some industry leaders suggested that the White House should focus instead on imported vehicles with no U.S. parts content, rather than disrupting North American supply chains.
As the tariffs take effect, some models may disappear entirely if automakers halt production of the hardest-hit vehicles. Even if the levies are short-lived, car manufacturers are already making adjustments to limit damage.
Anderson Economic Group’s study estimated that under the tariffs:
"Tariffs of the scale President Trump has proposed would have a sharp negative effect on auto sales," Anderson warned.
The automotive market is already struggling, with falling sales and rising borrowing costs pushing some consumers out of the market. In January, a decline in auto sales contributed to the biggest drop in inflation-adjusted consumer spending in nearly four years, according to government data released Friday.
Dan Hearsch, head of the Americas automotive practice at AlixPartners, estimated that U.S. auto sales could drop by 500,000 vehicles, even with more modest price increases. Automakers will likely cut production of certain models in Canada and Mexico and shift as much manufacturing as possible to U.S. plants.
"Some of those vehicles that can’t be built in the U.S. just probably won’t be made for a while," Hearsch said.
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