Shannon Bradley
Appearances
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Hi, Anna. Thanks for having me on today.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
It's been quite a few years. Going back to 2021 when the pandemic caused car prices to really reach record highs, and that was because of supply chain disruptions and vehicle shortages. And that continued on till by the end of 2022, the average new car price was nearly $50,000.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Over the last few years, the car market started to recover, but average new car prices still stayed around $48,000 to $49,000. So, you know, they're still about $10,000 over what they were before COVID hit. But I think a lot of people like me were hopeful that the market was returning to normal and that cars would become more affordable again. But then that normal was just disrupted by tariffs.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
A lot. I'll try to walk through this. You already mentioned the 25% tariff on imported passenger cars and light trucks, and that's already in effect. However, vehicles coming from Mexico or Canada that comply with the U.S.-Mexico-Canada trade agreement, the 25% tariff on those will only apply to content in the car that isn't U.S.-made.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Then by May 3rd, we will also have a 25% tariff on imported parts, which includes key components like engines, transmissions, and powertrain parts. Then we have other tariffs that could affect car production, like a 25% tariff that's already in effect on imported steel and aluminum.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
And then I think the big one would be the duties on imports from China, which could include a lot of other materials to build cars. Originally, tariffs on China imports were doubled to 20%. Then the so-called reciprocal tariffs on global trade partners announced last week added another 34% for China.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Really, the only good news in all of this is that we also found out when the reciprocal tariffs were announced, that at least those would not be on top of all of these other tariffs for autos, auto parts, steel and aluminum.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
He says, and you know, there is a level of truth that with free trade, you know, a lot of production has moved to other countries. So his belief is that by having these tariffs, it will bring vehicle manufacturing back to the U.S., whether in building new plants or bringing production back to idle plants. His reasoning is that increased production and competition in the U.S.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
would eventually, I say eventually, lower car prices for consumers. But automakers have said that moving production or building new plants can take years. In the meantime, car prices are going to go up for consumers. And to that, what Trump said on NBC's Meet the Press is that, quote, he couldn't care less if automakers raise prices because people are going to start buying American-made cars.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Well, in the big three, and I think most people know that's General Motors, Ford, and Stellantis, which was formerly Chrysler. When the threat of tariffs ramped up earlier in the year, Ford's CEO was quoted as saying that tariffs could blow a hole in the U.S. auto industry.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Then in March, when the 25% tariffs were announced on all imports from Mexico and Canada, the big three, they did successfully lobby for an exemption for USMCA-compliant vehicles and eventually other products. But that still means that non-USMCA vehicles and parts are subject to both the 25% auto tariff and the 25% Canada-Mexico duty tariff.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
And I think a lot of people thought he wasn't really going to do all of this. So reality is setting in. The day tariffs went into effect, the reaction from the big three... I'm not sure what word to use. It was, in a sense, kind of confusing because Ford's response was they rolled out a From America for America campaign with employee pricing for all shoppers through June 2nd.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
That same day, Stellantis announced it's idling some assembly plants in Mexico and Canada and temporarily laying off about 900 U.S. employees who make components for those plants. But then they also have since joined Ford in offering employee discounts to the public.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
I'm going to give you a very simplified explanation. The tariff percentage for that particular country, it's applied to what's called the declared value of the car. which usually includes the car's cost, shipping, and insurance.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
So for example, if you're importing a vehicle with a declared value of $50,000 and it has a 25% tariff rate, then the tariff owed would be $12,500 and the importer of that car would pay that when the car enters the country. And then typically some or all of that cost would be passed on to the consumer buying that vehicle.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Yes, it does. I've heard similar cost increases projected from other analysts, but you have to keep in mind that these are averages. So many factors come into play that vary from model to model.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
And one number that I've heard that I think kind of takes into account the different models of cars was put out by Anderson Economic Group, a consultancy firm, and they've analyzed that vehicles with the lowest and highest potential tariff impact to project the cost increases for a consumer.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
And their estimate is that for the lowest tariffed American cars, the expected additional cost would be about $2,500 to $5,000. And for the highest tariffed imports, that cost could increase up to $20,000.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
So vehicles on lots now shouldn't be subjected to tariffs. So if a dealer hikes the price now and says it's due to tariffs, they're taking advantage of the situation. Once dealers work through the pre-tariff supply that they have now, consumers will start to see price increases. And as of April 1st, new car inventory was at 66 market days of supply. But that doesn't account for a spike in demand.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
But I would say in general, people have about two months before they start to see new car prices rise.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Yes. You know, tariffs could affect used cars and buyers in several ways. Historically, and we saw this during the pandemic, when new car supply dwindles and prices rise, people turn to used cars. Then that supply starts to drop and that pushes demand and increases those prices.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Also, there aren't as many newer model used cars available, so buyers end up having to settle for older, higher mileage used cars. And complicating matters right now is that the supply of used cars is already tight because we're already seeing fewer off-lease vehicles being returned and more people already buying used cars when they can't afford today's new car prices.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Actually, we're already seeing an increase in demand for both used and new cars. Right after the March 26th announcement about tariffs, there was a jump. And, you know, people are buying new cars that are already on lots to avoid tariffs. Then the company CarGurus noted that there was a surge in new car sales rates.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
which pushed the estimated new car retail sales up nearly 30 percent month over month toward the end of March. And, you know, these sales numbers, I think, show consumers are hurrying to buy used cars as well before inventory tightens more than it already is.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Trying to stay on top of this, I've been attending a lot of auto industry calls and webinars. And there's one thing that I am consistently hearing from economists and other experts is that if you intend to buy a car in the next few years, whether it's new or used, the time to do it is now. I think some people have still been waiting for
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
You know, since prices shot up during the pandemic, hoping that car prices and auto loan rates would get closer to what they were five years ago. But if these tariffs do stick, the cost of buying a car is only going to go up.
NerdWallet's Smart Money Podcast
Car Prices, Tariffs, and Trade-Offs: What to Know Before You Buy or Move Out
Well, thanks for having me on and giving me an opportunity to try to clarify some of this because it really is hard to keep track.