Today’s Car Market: Are Car Prices Going Up or Down?
How tariffs and the "big, beautiful bill" may affect the cost of buying a car.
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Throughout 2025, new car prices have remained relatively steady, despite expectations that auto tariffs implemented in April would push prices higher. According to Cox Automotive's Kelley Blue Book, the average transaction price (ATP) paid for new vehicles in July was $48,841. This is a decrease of .01% from June, but it’s 1.5% higher year over year and the largest annual gain in 2025.
Although car buyers haven’t faced drastic increases in car prices this year, it appears many automakers have been absorbing tariff costs instead of passing them to consumers. Recent financial reports from several car makers — including General Motors, Ford, Toyota, Honda, Nissan, Subaru and Hyundai — attribute billions of dollars in losses directly to tariffs.
Further, many automakers have adjusted financial forecasts downward for the remainder of the year to account for the ongoing impact of tariffs. Car buyers are still likely to face higher car prices in the coming months, as automakers begin to pass at least some portion of tariff expenses on to consumers.
What is the current auto tariff situation?
With auto tariffs now in place for more than four months, the impact for car manufacturers is becoming clearer. What’s still in question is if and when tariff costs will trickle down to consumers.
Following is a list of the auto tariffs that are expected to eventually drive up car prices.
In early April, President Donald Trump set a 25% tariff on all imported passenger cars and light trucks, although this tax has now been reduced to 10% for the UK (for the first 100,000 vehicles). The White House and Trump also announced agreements with the European Union, South Korea and Japan to reduce auto tariffs to 15%, but these changes haven’t happened yet.
Foreign-made auto parts — including engines, transmissions, powertrain parts and electrical components — have a 25% tariff. Carmakers can apply for partial reimbursement of tariffs on imported parts, depending on the manufacturer’s volume and value of auto production in the United States.
Vehicles imported under the United States-Mexico-Canada agreement are subject to a 25% tariff, but it applies only to the value of vehicle content not made in the U.S..
Some materials used in production that don't fall under the industry-specific 25% tariffs could be subject to reciprocal tariffs, which range from 15% to 50% depending on the country.
A 50% tariff on imported steel, aluminum, copper and battery materials are adding to production costs of vehicles assembled in the U.S.
Tariffs are likely to continue evolving due to ongoing negotiations with various countries. Also, it’s worth noting that tariffs for auto manufacturers don’t stack. For example, if the import is a vehicle or part that falls under the 25% auto-specific tariff, other tariffs would not apply.
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 of a car depends on many factors, and tariffs simply add to the mix. Any price increases from tariffs will depend on the vehicle itself, where it’s fully assembled, how many parts are imported and what percentage of tariff costs a carmaker passes to buyers.
Based on its own analysis, Cox Automotive expects new vehicle prices to rise 4% to 8% by the end of the year, with 2026-model-year vehicles ushering in more increases.
Car buyers looking for a new vehicle under $30,000 may experience a negative impact from tariffs in a different way. Cars Commerce, the parent company of Cars.com, has pointed out that 92% of entry-level vehicles are imported. If tariffs push prices of these most affordable vehicles beyond what budget-conscious buyers will pay, automakers could decide to stop making them. In fact, Cars Commerce says inventory of such vehicles has decreased for three consecutive months.
Are tariffs affecting used car prices?
If new car prices increase as expected, more buyers may turn to used cars — tightening supply, increasing demand and pushing prices already at historic highs even higher.
Used car prices reached record levels during the pandemic and have remained there. In the second quarter of 2025, the ATP of three-year-old vehicles was $31,126, according to Edmunds analyst Ivan Drury. This was near the all-time record of $31,628 set in 2022 and a 5.2% increase compared to the same time in 2024.
Currently, the increase in used car prices is related less to tariffs and more to tight inventory caused by factors like fewer lease vehicles being returned and drivers keeping their cars longer.
Why are cars so expensive to begin with?
Before tariffs went into effect, new and used car prices were already high for several reasons.
At the height of the Covid-19 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.
High consumer demand following the pandemic enabled car manufacturers and dealers to continue selling cars at these higher prices.
Ongoing inflation 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.
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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.
Recent CPI reports have shown the new vehicle index ticking up and down slightly — decreasing .03% in June and remaining flat in July. The used car and truck index decreased 0.7% in June and increased 0.5% in July.
Currently, new car prices continue to hover near 2022’s all-time highs, which Kelley Blue Book places at $49,958. They’re also approximately $11,000 higher than before Covid-19.
What about auto financing rates and payments?
On top of paying high car prices, car buyers who finance face elevated interest rates and payments. Average auto loan interest rates increased to their highest level in years during the pandemic and have barely budged since.
The average new car payment was on pace to be $742 in July, according to J.D. Power. This is an increase of $12 from July 2024 and the highest on record for the month of July.
Also, Edmunds reported that nearly 20% of new-car buyers committed to a monthly payment of $1,000 or more in the second quarter of this year.
The "one big, beautiful bill," which was signed into law in July, includes an auto loan interest tax deduction, which is intended to help with vehicle affordability. Auto loan borrowers will be able to deduct up to $10,000 a year for car loan interest for tax years 2025-2028. The deduction will be available only for new cars with final assembly in the U.S., and the vehicle must be for personal use.
The deduction is “above-the-line,” meaning it can be taken by people who claim the standard deduction as well as those who itemize. It will begin to phase out for individuals with modified adjusted gross incomes over $100,000 ($200,000 for joint filers).
Rising car ownership costs have slowed
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 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 and ownership costs are higher now than they were five years ago, they may climb higher due to tariffs.
Now may also be a good time if you have good credit and can qualify for special financing offers. Cox Automotive reports that low-rate financing offers (0% to 3% APR) from auto manufacturers were at a three-year high in July.
In addition, if you plan to buy an electric vehicle (EV), it's likely they're about to become more expensive. In the past several years, EV buyers and lessees have taken advantage of federal tax credits established under the Inflation Reduction Act — up to $7,500 for new EVs and $4,000 for used. The "one big, beautiful bill" eliminates this credit for all EVs purchased after September 30, 2025.
How to find the best deal on a car
To increase your chances of finding a car that meets your needs at the best price, here are some tips to follow.
Shop around and be flexible about make and model. Some brands have already implemented tariff-related price increases, while others have not.
Look at auto manufacturer websites for any special pricing promotions. Some automakers are offering specials to motivate car shoppers, and some may offer EV specials to move cars before the federal incentive ends.
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, so you can get more favorable terms.
Compare auto lenders to find the best rate.
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.