After a lull in new tariff news, the latest round of actions reminds us that we’re not yet out of the water. Hopes that the administration might change course on tariff policy are quickly fading, replaced with the realization that import duties will not only stay but are likely to expand. After months of bracing for the full impact of tariffs, car manufacturers are now facing the reality that absorbing tariffs may no longer be a viable strategy.
So far, few of the tariffs imposed on carmakers have been passed on to consumers. Instead, companies like GM and Ford have eaten billions in additional costs, effectively shielding buyers from higher sticker prices. But that protection comes at a steep price.
In recent filings, GM reported it expected tariffs to cost is $3.5-$4.5 billion in 2025, and automakers in both the U.S. and Europe face another challenge likely to drive up costs and interfere with supply and sales — the conflict with China over chipmaker Nexperia, which threatens critical elements of the auto supply chain. The result is negative pressure on earnings and headwinds for investors.
That level of loss is not sustainable. At some point, carmakers will have to pass these costs on to consumers. When that happens, buyers may see double-digit price increases across many models, particularly those built outside the U.S. or that rely heavily on imported parts and materials.
A New Wave of Tariffs
The latest round of tariffs began on October 1, covering a wide range of goods: 100% on branded pharmaceuticals, 50% on kitchen and bath products, 30% on upholstered furniture and 25% on large trucks (an adjacent industry to automotive). Another wave took effect on October 14, adding 10% tariffs on softwood lumber and more duties on furniture.
While many of these actions target other industries, they illustrate the same growing trend: tariffs are being used as an ongoing economic policy lever rather than a temporary tool.
For carmakers, the pain is already real. Industry-specific tariffs include:
- 25% on cars and auto parts, representing the most immediate and visible hit.
- 50% on steel, aluminum and copper, the core materials in nearly every vehicle built today. Even cars assembled entirely in the U.S. are affected, since these metals are traded globally.
- Reciprocal tariffs of up to 30% on imports from countries without exemptions, such as Japan and South Korea.
Taken together, these layers could increase the total cost of a new vehicle by as much as 65%, according to some estimates.
But wait, there’s more. In September, the Department of Commerce signaled an upcoming expansion of the 25% automotive Section 232 tariff to widen its scope and include more parts. Depending on what gets added, this might impact electric or internal combustion vehicles differently. While it’s too early to know what models will be most affected, what’s certain is that any addition adds a new tax burden on car makers and buyers in general.
Why Carmakers are Absorbing Costs
For now, automakers are holding the line. One reason for absorbing the costs is softening consumer demand for new cars due to high financing costs and inflation-weary buyers. But that strategy has limits. Absorbing more tariffs cuts directly into profit margins, which are already under pressure. The question isn’t whether carmakers will eventually raise prices; it’s when.
If the current pace of cost increases continues, analysts expect price adjustments to begin within the next two quarters, aligning with the rollout of new models in early 2026. At that point, automakers may have no choice but to increase MSRPs (manufacturer’s suggested retail price) across the board or scale back production on lower-margin models.
Mexico’s Move Adds More Pressure
Mexico is considering its own set of tariffs that could reshape supply chains yet again. The proposal includes a 50% tariff on imported vehicles and 10–50% on auto parts from China and other Asian nations. If implemented later this fall, it would strike another blow to automakers that produce vehicles in China for the Mexican market or rely on Chinese-made components for cars assembled in Mexico and sold in the U.S.
These new Mexican tariffs could force manufacturers to reconsider where and how they build cars for the American market. In the short term, automakers may look to reroute production or source more materials from the U.S. and Canada. However, such shifts require time, capital and logistical adjustments, none of which occur overnight.
Consumers Will Feel It Next
For now, consumers haven’t felt much of the tariff impact at the dealership. But that window won’t stay open for long. As the full impact of tariffs percolates through the supply chain, higher costs will inevitably reach the end buyer. When that happens, the effects will extend beyond the car lot.
Higher vehicle prices could slow overall consumer spending, and weaken confidence in an already fragile economy. Car sales play a significant role in U.S. retail performance, and any slowdown in this sector tends to ripple through related industries, including auto parts, insurance, advertising and financing.
Tariffs may be framed as a tool to protect domestic industries, but in practice, they function as taxes on American businesses and households. Whether the goal is to pressure foreign governments, boost domestic production or rebalance trade deficits, the end result is the same: higher costs. For carmakers, the challenge now is endurance. How long can they keep absorbing costs without passing them on? As prices rise, how long will it take for buyers to change their behavior?
As tariffs ripple through supply chains and squeeze manufacturers, higher prices for cars and other goods will soon reach every American household. Carmakers have so far shielded consumers, but that protection will likely come to an end sooner than later.
John Lash is group VP of product strategy at e2open.