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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When 2025 began, the average transaction price on new and used vehicles was ticking down from past highs, but auto tariffs implemented by the Trump administration in early April were expected to push car prices higher. As of mid-June, car prices overall had not increased drastically, but many industry experts say price hikes, driven at least in part by tariffs, are still to come.
According to Cox Automotive's Kelley Blue Book, the average transaction price (ATP) paid for new vehicles held steady from April to May at $48,799. The average manufacturer’s suggested retail price (MSRP) climbed to $50,968 in May, the highest point so far in 2025 and up from $50,774 in April.
"While tariff policy is adding uncertainty to the new-vehicle market, prices are holding remarkably steady, a reminder that auto industry change is often slow,” Cox Automotive executive analyst Erin Keating said in the company’s May ATP report. "Many automakers are keeping true to a promise to hold the line on pricing, at least in the near term. We are still expecting prices to move higher through the summer, as the inflationary impact of tariffs begins to hit. Right now, we believe dealer profitability is being squeezed, as costs on many products are going up, but raising retail prices in this environment is a real challenge.”
Several major automakers have stated publicly that tariffs will cause significant reductions in company profits, which could push prices higher for certain new car models. In an email to NerdWallet, Ford spokesperson Said Deep confirmed sticker price increases for three popular models — the Mach-E electric SUV, Maverick pickup and Bronco Sport — attributing them to "usual mid-year pricing actions combined with some tariffs we are facing." Deep noted these increases (starting at about $600) would apply to vehicles arriving at dealerships in late June.
How will President Trump's tariffs increase car prices?
The convoluted implementation of auto tariffs has made it difficult to predict specific outcomes. In general, car buyers may still experience higher car prices in the coming months, as dealerships deplete pre-tariff inventory and automakers no longer absorb the full cost of tariffs.
Currently, the following auto-related tariffs are in effect:
A 25% tariff on imported passenger vehicles and light trucks. For the UK, it is 10% for the first 100,000 vehicles and 25% above that,.
A 25% tariff on foreign-made auto parts — including engines, transmissions, powertrain parts and electrical components. Carmakers will be able to apply for partial reimbursement of tariffs on imported parts, if the vehicle is assembled in the United States.
A 25% tariff on vehicles imported under the United States-Mexico-Canada agreement, but the tariff applies only to the value of vehicle content not made in the U.S..
Some auto parts that don't fall under the industry-specific 25% tariff are subject to reciprocal tariff rates, which vary by country.
A 50% tariff on imported steel and aluminum (25% for the UK) could affect the price of some vehicles.
In late April, Trump signed an executive order to eliminate the stacking of tariffs for auto manufacturers. For example, if a carmaker pays a tariff on an imported part made of steel, it won't pay a separate tariff on imported aluminum and steel.
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 adding tariffs to the mix makes cost predictions complicated. Prices will depend not only on where the car is 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.
During its 2025 Mid-Year Review presentation on June 25, Cox Automotive placed the anticipated price increase for an average vehicle to be about 4% to 8%. Still, much will depend on the actions of each auto manufacturer and whether they eventually pass more tariff costs on to customers.
Are tariffs affecting used car prices?
Although not directly, tariff costs can 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 came in late March. After the announcement, sales of both used and new cars rapidly increased, as buyers hurried to beat tariffs. The result was a decline in new and used car inventory.
In its Mid-Year Review, Cox Automotive said used car inventory remains tight. Prices for the top 50 models of three-year-old and newer used cars have increased for the past 13 weeks and are 3% higher than the same time last year.
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 enabled car manufacturers and dealers to keep prices high.
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.
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% in March, unchanged in April and decreasing by 0.3% in May.
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 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 $747 in June. This is an increase of $22 from June 2024 and the highest on record for the month of June.
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, President Trump proposed and succeeded in making auto loan interest tax-deductible as part of the "big, beautiful bill." This provision in the bill, now passed by the Senate and House and awaiting Trump's signature, will enable borrowers 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 if tariffs remain in place.
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 "big, beautiful bill" eliminates this credit for all EVs purchased after September 30, 2025.
To increase your chances of finding a car that meets your needs, shop around and be flexible about make and model. While some car brands have already started raising prices, some have not and others say they will hold prices flat as long as possible. Also, price increases so far have not been extreme.
Also, look at auto manufacturer websites for any special pricing promotions. Some automakers are offering specials to motivate car shoppers who are still on the fence about buying, and automakers may offer EV specials to move cars before the federal incentive ends.
To reduce car costs as much as possible before buying, here are a few other steps to follow.
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.