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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When 2025 began, the average transaction price on new vehicles was ticking down a bit from past highs. But new car prices are not expected to continue trending that way, mainly due to the Trump administration's tariffs on vehicles and parts to make them.
On April 3, a 25% tariff on cars and parts imported into the U.S. went into effect. This was in addition to a 25% levy already imposed on steel and aluminum imports, each of which are central to vehicle production. So-called reciprocal tariffs on goods from most countries, which were announced April 2, do not apply to autos, auto parts, steel and aluminum that already have a 25% tariff.
Despite a hold now placed on reciprocal tariffs, auto and auto part tariffs remain in effect. However, on April 14, President Trump said he is exploring the possibility of pausing tariffs on imported vehicles and parts to give auto companies more time to set up U.S. manufacturing,.
The compounding effect of tariffs on car prices remains to be seen — and may not be seen right away, as dealerships work through their existing vehicle inventory. But it's likely that automakers will eventually pass some portion of tariff costs on to their customers.
Will car prices go up under Trump's tariffs?
With numerous tariffs now implemented or planned, it's likely that car buyers will see car prices rise in the coming months. Here's a rundown of tariffs that could affect the cost of cars and car parts.
The 25% auto tariff now in effect applies to all imported passenger vehicles and light trucks. A 25% tariff on key automobile components — including engines, transmissions, powertrain parts and electrical components — will go into effect before May 3.
A 25% tariff on assembled vehicles from Canada and Mexico carves out some exceptions. For vehicles that comply with the U.S.-Mexico-Canada Agreement, the 25% tariff will apply only to the value of content not made in the U.S. Until a process is in place that allows automakers to certify where components are made, the content of USMCA-compliant automobiles will remain tariff-free. The White House's April 2 announcement of tariffs on global trading partners noted that existing orders pertaining to Canada and Mexico "remain in effect, and are unaffected by this order."
Since March 12, a 25% tariff has been in effect for all imports of steel and aluminum. Per the April 2 announcement, this tariff also is unaffected by the global tariffs.
Tariffs on imported goods from China, which may include materials used to make cars, have resulted in a trade war. In March, Trump doubled a duty on Chinese goods to 20%. China's total tariff amount has increased several times, reaching 145% as of April 10.
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. (Read more in our coverage of Trump's tariffs.)
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.
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,.
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:
High consumer demand following the Covid-19 pandemic has enabled car manufacturers and dealers to keep prices high.
Ongoing inflation has increased manufacturing and labor costs, which car manufacturers and dealers have passed on to car buyers.
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.
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.
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're likely to climb even higher. Buying now, before car prices rise and inventory shortages hit, could save you money.
During an Industry Insights and Sales Forecast call on March 26, Cox Automotive Senior Economist Charlie Chesbrough said new car pricing is already changing in the marketplace and not in the buyer's favor. With auto incentives declining, dealers less likely to negotiate price and the potential for production disruptions, Chesbrough said the "new vehicle market is looking at a perfect storm for a return of inflation."
To reduce car costs as much as possible before buying, follow a few simple steps.
Check online pricing guides such as Kelley Blue Book, Edmunds or NADA guides to know what price you should pay.
If financing, know the ins and outs of getting a car loan ...
Use an auto loan calculator to determine the best scenario — loan amount, interest rate, term and down payment — for a monthly payment that fits your budget.