Here’s a news flash for you: prices almost always go up. In the auto industry, they go up toward the end of the year, when carmakers roll out new and updated models and have an excuse to raise stickers on the fresh sheet metal. This maneuver, of course, is often offset by good deals on the previous model year, as dealers try to move inventory off their lots. This year, a wildcard has been thrown into the mix, in the form of 15 percent tariffs on vehicles imported from Japan and Europe (those levies are currently higher, and it seems some negotiation glitches with the Europeans may keep them there for a while).
Marketplace covered the pricing situation and offered an important takeaway: automakers are running out of time to deal with tariffs. The clock has been ticking all year, and once the end-of-year clear-outs are finished, the bell is going to toll for car companies and consumers alike. The upshot is that new vehicles are likely to get even more expensive, as automakers can’t eat tariff-induced costs forever. For the record, the average transaction price is currently hovering just below $50,000 in the U.S., so the inevitable tariff reckoning is not going to be fun. For much of 2025, the auto industry has been inclined to take a low profile here. Carmakers don’t want to expose themselves to political attack, and plenty of executives are still recovering from the first Trump administration, when the chief executive showed little compunction about jawboning the industry to achieve his ends.
The debate about passing on tariff costs
That said, it’s going to be impossible to hide forever from the tariff hit. As a practical matter, most automakers are enterprises that ultimately have to answer to their shareholders, and the big car companies have already advised that their bottom lines are going to suffer this year, to the tune of billions. Washington would like to think that tariff revenue will continue to slosh in as a sort of corporate tax increase that companies have been cowed into accepting. But bad news will eventually arrive, in the form of reduced profits and falling stock prices, so the pain is going to have to be passed on to consumers.
Of late, the U.S. market has been on a bit of a sugar high, as buyers have been buying up cars ahead of any tariff-related price hikes. S&P Global is still predicting a respectable, if not spectacular, year for sales in 2025, topping out at almost 16 million new vehicles. The concern is that the pace will fall off a cliff in 2026, as consumers hunker down. Perhaps everyone is hoping the price hikes will remain somewhat opaque, as most consumers finance their new-car purchases and 15 percent might not seem so bad when spread out over five years. That would be plausible if the average price we’re already so high. The most basic math suggests that we could see something just under $60,000 in 2026, if automakers finally start to pass along tariff costs.
Consumers are eventually going to get hit with stick shock
That’s going to introduce new stress on monthly budgets, which are already likely to be contending with elevate stress due to all manner of other companies having to pass along their tariff-related costs. You can easily see why the Trump administration wants lower interest rates in this environment: consumers are going to need to borrow money to stay afloat; and they’re going to need lower borrowing costs to, among other things, offset their new-car-buying liabilities. If people are binging now when automakers are absorbing tariff costs and holding the line on pricing, they’re liable to delay purchases in 2026.Â
The last time we had this big a shock the U.S. system, it was the 2008 financial crisis. Back then, credit collapsed and took U.S. auto sales with it. Price decreases were the order of the day. Tariffs reverse that script, and its doubtful that an extension of the 2017 tax cuts and even interest rates dropped to near-zero levels would be enough to keep consumers in the game. As a reminder, things got so bad after the financial crisis that people held off on new car purchases for years, and the typical duration of car ownership went above ten years. That trend never really reversed, adding a drag on U.S. sales that compelled automakers to lean into higher-priced models.
We are, it seems, not in for a happy ride as the bills finally come due.
