Car Prices Face $3,000 Increase as Tariffs Hit Auto Sector

President Donald Trump’s tariffs against Canada and Mexico will threaten production at automakers across North America and send record vehicle prices even higher, with about a quarter of a trillion dollars in trade set to be disrupted.

Trump vowed on Saturday to follow through with 25% duties on imports from the two countries, blaming the flow of migrants and drugs over the U.S. borders, as well as large trade deficits. Barring a surprise, the tariffs are set to take effect at 12:01 a.m. on Tuesday.

“The auto sector is going to shut down within a week,” said Flavio Volpe, president of Canada’s Automotive Parts Manufacturers’ Association. “At 25%, absolutely nobody in our business is profitable by a long shot.”

The duties would immediately hit almost one-quarter of the 16 million vehicles that are sold in the US each year, as well as the parts and components that go into them — an import market that totaled $225 billion in 2024, according to research from consultant AlixPartners. Tariffs will add $60 billion in costs to the industry, the research shows, much of which is likely to be passed on to consumers.

Automaker stocks traded sharply lower on Monday as investors began to digest the impact of tariffs. General Motors Co., which has the heaviest exposure to Mexico and Canada among major U.S. manufacturers, was down 7.9% as of 7:44 a.m. before regular trading in New York. Ford Motor Co. fell 4.7%. Toyota Motor Corp. and Nissan Motor Co. dropped in Asia trading, while Volkswagen AG and Stellantis NV led the steepest intraday decline in European auto shares since April.

Automakers in Mexico have been preparing by preemptively importing both more components and vehicles, which may ease the blow in the first few weeks, said Guillermo Rosales, president of the Mexican Association of Automotive Distributors, or AMDA. After that, the outlook is less certain. “Everything depends on the course that the Trump administration takes in this matter,” he said.

The order “weakens the most integrated industry in North America,” Mexico’s auto associations said in a joint statement Sunday, putting “the competitiveness of North America as a whole at stake.”

While Trump’s tariffs loom large over Mexico’s auto industry, some automakers such as BMW are powering ahead. The tariffs will not affect BMW’s plans to invest 800 million euros in a new battery facility near its San Luis Potosi, Mexico, factory, which will enable local production of a next-generation EV known as the Neue Klasse by 2027, a BMW Group representative said. “The BMW Group does not base its long-term strategic decisions on politics or political incentives,” the company said.

Car components can make their way back and forth across US borders as many as eight times during production, heaping duties onto a sprawling industry that relies on materials from all three countries. At the consumer end of the supply chain, the average price of a new car may climb by about $3,000, Wolfe Research analysts have said, further straining affordability with prices already close to all-time highs.

“It is going to be a lot of impact,” Aruna Anand, chief executive officer of parts supplier Continental AG’s North American business, said in an interview. “The question is who is absorbing the price and it becomes, are we able to absorb that price or is it going to be shifted to the end consumer?”

‘Ghost Town’

Since Trump renegotiated the free trade agreement between the US, Canada and Mexico during his first term, automakers in those countries have had to meet higher thresholds for parts made in North America, but trilateral trade hasn’t incurred duties. The president’s new tariffs upend the agreement, which is due to be reviewed next year.

For automaking hubs like Windsor, Ontario, and Detroit, and across multiple states in Mexico, the effects are likely to be immediate.

“We’re talking about thousands and thousands of jobs being lost,” said John D’Agnolo, the president of a local union representing workers at Ford’s engine plant in Windsor. “We’d truly be a ghost town, here in Windsor, if we lost this type of business.”

Ontario Premier Doug Ford has warned that more than 500,000 jobs may be lost just in Canada’s most populous province, many of them in the auto sector.

Industry experts said that sourcing every last piece of a vehicle within the US supply chain — as Trump wants — is a tough ask. On the campaign trail, Trump promised that his protectionist policies would bring manufacturing jobs back to the US, raise revenue and lower the country’s trade deficit. Analysts have warned it could take years to shift production and create new jobs.

General Motors, the largest US carmaker, has said it wouldn’t move production unless the company can be sure it makes long-term sense.

“We are working across our supply chain, logistics network, and assembly plants so that we are prepared to mitigate near-term impacts,” CEO Mary Barra told analysts on Jan. 28. “Many of these actions are no cost or low cost. What we won’t do is spend large amount of capital without clarity.”

The Detroit-based company imports its Chevrolet Equinox EV and Blazer EV from a plant in Ramos Arizpe, Mexico, and manufactures large pickup trucks in Silao.

GM Chief Financial Officer Paul Jacobson said recently that the company was taking inventory in Canada and Mexico down in anticipation of tariffs. The automaker was also expediting the shipment of those vehicles, according to a spokesman.

China Imports

In Mexico, tariffs would likely reduce growth in the country’s auto-parts sector to zero this year, from a projected 2%, said Francisco González, executive president of Mexico’s National Auto Parts Industry Association, known as INA. González noted that price increases would quickly be passed on to consumers.

“The automotive industry cannot adapt to such a decision in the short term,” he said.

One supplier said that their margins on certain parts made in Mexico were just 2% to 10%, so adding the tariff would mean an instant loss of as much as 23% on each component.

Alongside Trump’s complaints about migrants and the drug trade, the president has also expressed concern that China is using Mexico as a “backdoor” to send cheap goods into the U.S. Since the U.S. election, President Claudia Sheinbaum has added tariffs of her own on cheap Asian imports and shifted focus to local manufacturing. She’s vowed to retaliate against the U.S. duties.

As recently as Jan. 29, Sheinbaum had sounded confident that the country would sidestep any trade duties.

Gonzalez said concerns that Chinese car parts are entering the US via Mexico are overblown, with less than 3% of components sold in Mexico imported from China. Still, suppliers are working to find alternatives to Asian-made parts, he said, with low-cost components like nuts, bolts, plastics and resins, as well as some software, easiest to replace.

Mexico’s share of the U.S. car market has steadily increased over the past 40 years, overtaking Canada around the 2008 financial crisis, research from Toronto-Dominion Bank shows.

For its part, the Canadian government pledged 25% tariffs against C$155 billion ($106 billion) of US goods. Outgoing Prime Minister Justin Trudeau’s administration has pushed to secure investments for electric vehicle production in Ontario’s manufacturing hubs, drawing firms like Honda Motor Co. and Volkswagen to pledge tens of billions of dollars to build battery and assembly plants in the region.

Canada’s auto trade relationship with the US dates back to the 1920s, when Henry Ford outsourced some manufacturing of the Ford Model T to factories on the Canadian side of the Detroit River. The country’s auto industry is still heavily concentrated in that area, where Windsor connects to Detroit via the 1.5-mile (2.4 kilometer) Ambassador Bridge.

Auto assembly in Canada has declined sharply since 2000 — in fact, most of the vehicles sold in the country are supplied by US factories, and only 9% are Canadian-made, as measured by dollar value. But the parts-supply industry has remained relatively healthy.

About a year ago, Laval Tool, a small auto-parts manufacturer in Windsor, signed a two-year contract to supply Tesla Inc. with molds for the Cybertruck.

Many of the materials for the molds are sourced within Canada, according to Jonathon Azzopardi, Laval’s CEO. But the steel used in his factory is imported from the US. That means the process, which already costs as much as $500,000 per mold, is about to get even more expensive.

“I’ll be paying a tariff for the steel to come in from the US. Then I’ll be paying a tariff when the mold leaves to go back into the US,” he said in an interview before final details of the duties were announced.

“It’ll make us uncompetitive and we’ll lose business.”

In early 2022, autoworkers in Windsor got a glimpse into what happens when the supply chain between the two countries is interrupted, after protesters of Canada’s Covid-19 lockdown rules blocked access to the bridge.

“Within 24 hours of parts not being able to make it across the border in either direction, car production stopped in Ontario, Michigan, Texas and Missouri,” said APMA’s Volpe.

Automakers are likely to cut production again almost immediately once tariffs are implemented, said Michael Robinet, vice president of forecast strategy for S&P Global Mobility. If they carry on making the same volume of vehicles, he said, they risk shipping them into the US to sit on forecourts while consumers try to wait out the duties.

“Automakers and suppliers would hold off on building high tariff products,” Robinet said. “We expect production and sales would go down.”

Top photo: Vehicles parked at General Motors Co. Silao Complex in Silao, Guanajuato state, Mexico.