Automakers Bear the Brunt of Tariffs – For Now, But Change Looms

The Soaring Cost of Tariffs on the Automotive Sector

The automotive industry has faced substantial financial pressure due to recently imposed tariffs. Elevated taxes on essential imports like aluminum and steel have driven up the cost of raw materials for vehicle production. Furthermore, tariffs on foreign-manufactured components and imported cars have reached levels as high as 25% earlier this year. Even after recent trade agreements with nations such as Japan and the European Union, tariffs on imports from these regions remain at 15%, significantly higher than previous rates.

Consumer Prices Remain Stable – A Temporary Respite

Despite the steep increase in costs for manufacturers, these burdens have not yet been transferred to consumers. Data from Kelley Blue Book indicates that the average transaction price for new vehicles in June saw a modest year-over-year increase of 1.2%. This growth is actually less than the decade-long average annual increase, suggesting that car prices have risen at a slower rate since the tariffs were implemented.

Why Automakers Absorbed the Tariff Impact

Several factors explain why car companies have, thus far, absorbed the increased tariff costs. When tariffs first took effect this spring, dealerships had substantial inventories of vehicles imported before the new duties. Additionally, companies capitalized on the opportunity to attract new customers by deferring price hikes, especially as buyers sought to purchase vehicles ahead of anticipated price increases. Automakers were also wary of further deterring consumers, as the market was already sensitive to price, with average new car prices nearing $50,000 and used cars at almost $30,000. Many buyers are already struggling with high monthly loan payments and increasing insurance costs, making any further price hikes a significant concern.

Manufacturers Bear the Financial Strain

Instead of passing on costs, leading automakers have absorbed significant losses. Financial reports from the past quarter reveal tariff expenses totaling billions: General Motors incurred $1.1 billion, Hyundai $600 million, Kia over $500 million, and Volkswagen $1.5 billion. Stellantis, the conglomerate behind brands like Chrysler, Dodge, Jeep, and Ram, anticipates its annual tariff expenses to be around $1.7 billion. While these figures are substantial, most of these companies have remained profitable, indicating their capacity to withstand the initial shock, though suppliers are also feeling the pinch.

Future Strategies: Production Shifts and Cost Transfers

Under pressure from investors, car companies are exploring various strategies to manage the ongoing tariff impact. One approach involves relocating production facilities to the United States. Volkswagen Group's CEO, Oliver Blume, has hinted at the possibility of manufacturing Audi vehicles in the U.S., expanding on their existing Volkswagen production in Chattanooga, Tennessee. General Motors is also shifting the production of its Chevy Blazer model from Mexico to Tennessee. Another strategy is to reduce internal costs, either by negotiating better deals with suppliers or identifying savings elsewhere in their supply chains. Ultimately, executives have indicated that consumers will eventually bear these costs.

Anticipated Price Hikes and Financing Adjustments

Industry experts predict that car prices will inevitably rise. Stellantis Chief Financial Officer Doug Ostermann has publicly stated that the company expects to "make progress on pricing," which in corporate terms signifies an increase. Analysts from Edmunds and Cox Automotive foresee that the introduction of 2026 model year vehicles in the coming months will be a natural opportunity for price adjustments. Predictions suggest a price increase of 4% to 8%, with 8% being the maximum before cars become uncompetitive. Beyond direct price increases, consumers may also face less favorable financing terms, such as higher interest rates or reduced cash-back incentives. The general consensus is that market changes are imminent.