Today’s Car Market: Are New Car Prices Going Up or Down?

New car prices dropped slightly to start 2025, but they’re expected to rise with new tariffs in effect.

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Updated · 6 min read
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Written by Shannon Bradley
Lead Writer & Content Strategist
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Edited by Tina Orem
Editor & Content Strategist

When 2025 began, the average transaction price on new vehicles was ticking down from past highs, but tariffs implemented by the Trump administration are expected to drive car prices higher. A 25% tariff on cars and parts imported into the U.S. went into effect in early April, on top of several other tariffs.

The full effect of stacking multiple tariffs has been uncertain, but on April 29 President Trump signed an executive order stating that the 25% auto and parts tariff will not be in addition to other duties — such as those for steel and aluminum. Trump also issued an order that partially offsets the cost of tariffs on foreign-made parts for cars assembled in the U.S.

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Even with this slight reprieve, the 25% tariff on imported cars and parts remains, and it's expected to increase car prices as dealerships deplete their inventory of pre-tariff vehicles.

Will car prices go up under Trump's tariffs?

It's likely that car buyers will see car prices rise in the coming months, as carmakers pass some portion of tariff costs on to consumers. Here's a rundown of auto-related tariffs and where each stands.

So-called reciprocal tariffs on goods from most countries, which were announced April 2 and later delayed, did not apply to autos and auto parts that already have a 25% tariff

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Did you know...

A tariff is a tax imposed by the government of a country on goods imported from another country. A government might use tariffs to regulate trade, protect domestic interests or raise revenue. The purchaser of the goods — such as a carmaker buying parts — pays the tariff and may choose to pass that cost on to consumers.

How much will new car prices increase?

The final cost to consumers for a car depends on many factors, and adding tariffs to the mix makes cost predictions complicated. For each vehicle, it will depend not only on where it’s fully assembled, but also on how many parts are imported and what percentage of tariff costs the carmaker passes to buyers.

Consultancy firm Anderson Economic Group has analyzed vehicles with the lowest and highest potential tariff impact to project cost increases to consumers. For the lowest-tariffed American cars, the expected additional cost is $2,500 to $5,000. For the highest-tariffed imports, cost could increase up to $20,000

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Also, a discussed elimination of the EV tax credit could cause prices of certain electric vehicles and plug-in hybrids to eventually rise. Members of the Senate recently introduced legislation to end the EV tax credit (currently up to $7,500 for new vehicles and up to $4,000 for used) and to add a $1,000 tax per EV for road repairs

Senator John Barrasso. Barrasso Bill Ends Electric Vehicle Tax Credits. Accessed Feb 28, 2025.
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Are used car prices dropping?

Throughout 2024, used vehicle prices steadily decreased; however, that trend may be changing. According to CarGurus, the average price for used cars increased $219 from March 21 to March 31, reaching $27,217. Increasing demand driven by tariff concerns could be a factor.

Although it was improving, used-car inventory has been tight due to fewer off-lease vehicles being returned, owners keeping cars longer and the inability of buyers to afford new cars. Following the March 26 tariff announcement, sales of both used and new cars rapidly increased. CarGurus reported a late March buying surge that increased new car sales estimates by nearly 30% month-over-month.

As the supply of tariff-free new cars decreases, more buyers may turn to used cars — further tightening supply, increasing demand and pushing prices higher.

Why are cars so expensive now?

Beyond any impact from tariffs, new and used car prices are high for three reasons:

  1. High consumer demand following the Covid-19 pandemic has enabled car manufacturers and dealers to keep prices high.

  2. Ongoing inflation has increased manufacturing and labor costs, which car manufacturers and dealers have passed on to car buyers.

  3. Many new cars come with advanced technology, larger infotainment screens, driver-assistance systems, and hybrid/EV powertrains — all adding to the cost.  

At the height of the pandemic, supply chain disruptions and semiconductor chip shortages were responsible for slowing, and even halting, vehicle production. As car inventory decreased, new and used car prices skyrocketed and remain elevated today.

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New car prices climbed 22% since 2019

According to the consumer price index, which is a Bureau of Labor Statistics measurement of inflation and prices paid by consumers, new vehicle prices have increased 22% since 2019

. New car prices decreased slightly in 2024 and ticked back up at the end of the year. According to the CPI report released on April 10, the new car index increased by 0.1 percent in March.

Average new car prices are still around $48,000 — hovering near 2022’s all-time highs, which J.D. Power places at $47,329 and Cox Automotive sets at $49,926. They’re also approximately $11,000 higher than before Covid-19 hit.

What about auto financing rates and payments?

On top of paying high car prices, car buyers who finance are likely to continue paying elevated interest rates and payments. Average auto loan interest rates increased to their highest level in years during the pandemic, and they’ve barely budged down. According to J.D. Power, the average new car payment was on pace to be $731 in March

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Although presidents don’t control interest rates, their policies may influence them. When prices overall begin to rise, the Federal Reserve usually increases the federal funds rate to slow economic activity and reduce inflation. When the federal funds rate changes, auto loan rates typically follow. The following chart shows movement of the federal funds rate since 2021.

To help with vehicle affordability, Trump has proposed making loan interest on U.S.-made vehicles tax deductible. But it’s unclear how or if such a proposal would actually be implemented.

Car ownership cost presents an additional challenge

The upfront price of cars hasn’t been the only financial pain point for consumers, as shown by the NerdWallet Vehicle Ownership Costs Index, which is a measurement of inflation and spending figures from the BLS.

Car ownership costs grew at a double-digit annual rate every month from April 2021 to November 2022, according to NerdWallet's ownership index. That growth has slowed overall, but the most recent data shows ownership inflation was 6% in February. Since February 2020, the costs — including gas, repairs and maintenance, parking, insurance and licensing costs — have risen 43%.

Vehicle repair and car insurance costs may also increase because of tariffs. Many vehicle parts are sourced globally, so the higher cost to repair a car could be passed on at the body shop or through insurance premiums.

Is now a good time to buy a car?

If you anticipate wanting or needing a new car in the next few years and can afford to buy now, it may be a good idea to do so. Although car prices, auto loan interest rates and ownership costs are higher now than they were five years ago, they may climb even higher.

According to Patrick Masterson, lead researcher for Cars.com's 2024 American-Made Index, no car is 100% American-made. The Tesla Model Y has the highest U.S. parts content at around 75%. Masterson said in an email, “This means many vehicles will only partially qualify for the recent tariff credit and consumers won’t necessarily see cuts as a result. Bottom line, our advice to car shoppers is that if you’re thinking about buying a car, start shopping now. The new policy gives automakers a bit of a cushion — but there’s no guarantee that the relief will trickle down to consumers.”

To reduce car costs as much as possible before buying, follow a few steps.