Tariffs Drive Up New Car Costs, Study Finds
Rising Costs and Changing Dynamics in the U.S. Car Market
New cars are becoming increasingly expensive, and the data suggests that this trend is unlikely to reverse soon. According to recent figures from Cox Automotive and Kelley Blue Book, the average transaction price for a new car reached $48,907 in June 2025, reflecting a 1.2% increase compared to the same period last year. While this figure may seem high, it’s important to understand the factors driving these price increases and how they are reshaping the automotive landscape.
One of the most significant changes in the market has been the decline of affordable options. A study conducted by Cars Commerce, the research arm of Cars.com, highlights that several key factors are contributing to the unaffordability of vehicles. These include trade policies, tax credits, and shifts in consumer behavior.
The Disappearance of Affordable Vehicles
The availability of cars priced under $30,000 has seen a sharp decline. According to the Industry Insights Report from Cars Commerce, this segment made up just 13.6% of new car inventory in the first half of 2025, down significantly from 38% in 2019. This drop is attributed to a combination of rising import tariffs and the expiration of federal EV tax credits.
Imported vehicles make up a large portion of this lower-priced segment, with about 92% of cars sold under $30,000 being imported from overseas. Only a few models, such as the Honda Civic and Toyota Corolla, are produced domestically. This dependency on foreign manufacturing makes the segment particularly vulnerable to trade policies.
Shifts in the Mid-Range Segment
The mid-range segment, which includes cars priced between $30,000 and $49,000, accounts for nearly half of all new car inventory. However, about 50% of the vehicles in this category are also imported. Automakers have begun adjusting their strategies in response to tariffs, with an increase in the share of imported cars within higher price brackets.
Dealerships have also taken steps to manage inventory before the implementation of new tariffs. In the first half of 2025, dealer inventory increased by 5.6%, as they prepared for the impact of trade policies. This led to a surge in sales during March and April, resulting in a 3.9% rise in new car sales compared to the first half of 2024.
Impact on Used Car Prices
The increase in new vehicle purchases has had a ripple effect on the used car market. As consumers traded in their vehicles before the tariffs took effect, the supply of used cars rose, leading to a slight dip in prices during the first quarter of 2025. However, used car prices rebounded with a 1.6% increase in the second quarter.
Consumer Behavior and Preferences
According to surveys conducted by Cars.com, more than half of consumers said that the tariffs influenced their decision to buy American-made cars. Over 73% of respondents indicated they would consider purchasing U.S.-built vehicles to avoid additional costs. This shift in consumer behavior is expected to continue as pre-tariff inventory dwindles.
Price Trends Across Different Markets
While the average price of new cars has only risen by $97 so far this year, certain markets have experienced more dramatic increases. Vehicles from the United Kingdom have become over $10,000 more expensive, while EU-built cars have seen an average increase of nearly $2,500. In contrast, vehicles from China, Canada, and Korea, as well as American-built cars, have seen average price decreases of around $200.
Effects on Electric Vehicle Buyers
The expiration of the federal $7,500 tax credit for new electric vehicles after September is also expected to impact the market. According to a survey of EV buyers, 53% cited the tax credit as a primary reason for their purchase. This raises concerns about maintaining the momentum of 28 consecutive months of new EV inventory growth once the credit expires.
Future Outlook and Industry Responses
Industry experts suggest that the current situation is complex and will require time to resolve. While some automakers, like Nissan and Volvo, are taking steps to localize production, these efforts are not immediate solutions. For example, Volvo plans to begin producing its top-selling XC60 model in South Carolina by 2026.
Consumers can access information about which vehicles are “American-made” through resources like the NHTSA’s Part 583 American Automobile Labeling Act Reports, which are publicly available on the agency’s website. As the market continues to evolve, understanding these dynamics will be essential for both buyers and industry stakeholders.