President Trump’s 25 percent import tariff on vehicles has been somewhat of a boondoggle at this moment, but speculation about its effect on the American-driven car market has been lively. Well, one potential target in this scenario is the working-class consumer who has dependent in great part on lower-range automobile models, according to some analysis. Here’s the deal: the problem is that so much of the sub-$30k new vehicle supply today comes from outside the U.S. Statistics compiled by car research companies show that only a handful of cars sold in this price range are still produced in the United States. The vast majority are from manufacturing plants in Mexico, South Korea or Japan.
And tariffs can impact the prices of these entry-level vehicles. In the not too distant future, this could become an issue for consumers in search of affordable transportation options. Those type of price increases could push consumers farther from new vehicles and into the used car market, analysts in the industry said. That could also lead to some changes in more accustomed pricing.
Production at Home and Market Dynamics
It requires a look at what’s occurring in the American auto business today. Domestic producers had been concentrating largely on the production of trucks and sports utility vehicles, which have higher profit margins. Because of this strategy shift, the number of new, lower-cost cars being built in the U.S. has declined.
General Motors, for its part, builds some of its budget cars, including the Buick Envista, Chevrolet Trax, and the Chevrolet Trailblazer, in South Korea. It also builds a good deal of its full-size trucks in Mexico. Some of the lower-priced vehicles in the American market, for manufacturers like Ford and Stellantis, are made in Mexico. Look no further than the Ford Maverick and Bronco Sport, and Jeep Compass.
The economy car products are sourced from lower-cost manufacturing countries. But this allows automakers to remain profitable in a savage set of market segments.
Potential Economic Impact
The tariffs could have broader economic ramifications. Some industry-movers expressed fear of probably effects on consumer spending. Such higher vehicle prices could also trigger a reshuffling of budgets, they said, with potential repercussions on discretionary spending and the timing of big-ticket purchases.
Also under question is the theory that tariffs will ignite a renaissance of the domestic auto industry. Some analysts also say that the effect could be the opposite. The new model from Import to domestic vehicle may have a higher cost on part and vehicle to make things less competitive or will increase something domestic production without significant increase competition.
The proposed tariffs could raise the cost by large amounts for vehicles manufactured in Canada and Mexico, and by significant amounts for vehicles built in the United States, analysis shows.
Used Car Market Adjustments
Likewise, there could be adjustments to tariffs on the used car market. Good used cars are in short supply. That means that any further demand, driven by expensive new cars, may find used car prices shift even more.
The vehicles that will be in the highest demand are likely to be those in the $15,000 to $25,000 price point. That is, because production of new vehicles at this price point may be scaled back. Dealers have a fairly tight supply of used cars under $15,000, now.
Automakers and the Road Ahead
Automakers are evaluating how the tariffs would impact them. There are a number of other enterprises that are still evaluating the long-run implications of these tariffs.
Margins on economy vehicles are typically low, and consumers in this age group are highly price sensitive. That means tariffs could have a significant effect on these vehicles — not just as an affordability issue, but in some cases as a matter of viability.
Many influences go into the automotive space, including production, pricing, incentives and more. The possibility of tariffs is another game changer to plan for.
