Today’s Car Market: Are Car Prices Going Up or Down?
With auto tariffs now in effect, new and used car prices are expected to rise.
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When 2025 began, the average transaction price on new and used vehicles was ticking down from past highs, but tariffs implemented by the Trump administration are expected to push car prices higher.
According to the Carfax Used Car Index, used car prices in April increased nearly twice as much as they normally do this time of year. The Cox Automotive Manheim Used Vehicle Value Index — which tracks the price of used vehicles sold through wholesale auctions — increased 4.9% from a year ago. That's the highest level since 2023,.
As far as new car prices, several major automakers have stated publicly that tariffs will cause significant reductions in profit and some portion of tariffs are likely to passed on to consumers. This week, Reuters reported about a Ford Motor Company notice to dealerships about a future price increase of up to $2,000 for three popular models — the Mach-E electric SUV, Maverick pickup and Bronco Sport.
In an email to NerdWallet, Ford spokesperson Said Deep confirmed upcoming sticker price increases, attributing them to "usual mid-year pricing actions combined with some tariffs we are facing." Deep noted some increase amounts are lower (starting at $600), depending on vehicle model and trim. The price hike is not immediate, and will apply to Ford imported vehicles built after May 2, which would start arriving at dealerships in late June.
How will Trump's tariffs increase car prices?
The convoluted implementation of auto tariffs has made it difficult to predict specific outcomes. In general, car buyers should anticipate rising car prices related to tariffs in the coming months, as dealerships deplete pre-tariff inventory. Here's a rundown of auto tariffs and where each stands.
A 25% tariff on all imported passenger vehicles and light trucks has been in effect since early April, and a 25% tariff on foreign-made auto parts — including engines, transmissions, powertrain parts and electrical components — went into effect in early May.
The 25% tariff on imported cars and parts would have stacked on top of other tariffs, such as one for steel and aluminum. But, on April 29, President Trump signed executive orders with the intent of providing some relief to automakers. These orders eliminated the stacking of tariffs and carved out some exceptions for imported auto parts. For cars assembled in the U.S., carmakers can apply for partial reimbursement of tariffs on imported parts, an offset that phases out over the next two years,.
Vehicles imported under the United States-Mexico-Canada agreement also have a 25% tariff, but it 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 remains tariff-free.
Tariffs on imported goods from China, which may include materials used to make cars, have been reduced from 145% to 30% for 90 days. These are in addition to auto tariffs.
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.
In response to the April 29 changes that Trump said would give U.S. auto companies "a little bit of a break," many auto industry experts have said they may soften, but not prevent, an increase in car prices. Cox Automotive Chief Economist Jonathan Smoke said during an Automotive Press Association webinar that the reprieve is "taking a bad situation and making it slightly less worse."
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 $2,000 to $3,000. For the highest-tariffed vehicles, cost could increase by $10,000 or more.
Still, much will depend on the actions of each auto manufacturer. Ford's announced price increases do not pass full tariff costs on to customers, and according to Deep the company's "approach throughout this evolving situation continues to be doing what’s right for our customers — and our business."
Are tariffs affecting used car prices?
Although not directly, tariff costs do affect used cars. As the supply of tariff-free new cars decreases, more buyers are likely to turn to used cars — tightening supply, increasing demand and pushing prices higher.
Although it was improving, used-car inventory was already tight when the first auto-related tariff announcement was made in late March. After this announcement, sales of both used and new cars rapidly increased, as buyers hurried to beat tariffs. The Cox Automotive Auto Market Report for April 29 noted that the supply of both used and new cars has declined and is lower than it was a year ago.
According to the CarGurus Used Car Price Index, the average price for a used car as of May 7 is $27,762, a 3.15% increase over the previous 90 days.
Why are cars so expensive now?
Beyond any impact from tariffs, new and used car prices were already 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 (CPI), 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. CPI reports showed the new car index increasing by 0.1 percent in March and staying unchanged in April,.
However, Kelley Blue Book reported the average transaction price of new cars increased to $48,699 in April, a month-over-month increase of 2.5%. KBB bases this information on actual vehicle sales transactions from various sources. KBB also noted that in the past decade, only April 2020 produced a larger month-over-month increase at 2.7%.
Currently, new car prices continue to hover near 2022’s all-time highs, which KBB places at $49,958. 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 $742 in April.
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.
Rising car ownership costs eased in April
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.
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.”
Currently, some automakers are offering specials to capture the business of car shoppers trying to beat tariff price increases. For example, Ford shared that a From America, For America employee pricing promotion has been extended through July 4 weekend and includes the three models with planed price increases.
To reduce car costs as much as possible before buying, here are a few steps to follow.
Look at auto manufacturer websites for any special pricing promotions.
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.