Today’s Car Market: Are Car Prices Going Up or Down?
With auto tariffs now in effect, new and used car prices are expected to rise.
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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 have 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 last month, Ford spokesperson Said Deep confirmed upcoming 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 that start arriving at dealerships in late June.
How will 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.
On May 28, the U.S. Court of International Trade ruled to halt Trump's reciprocal or "Liberation Day" tariffs on goods from most countries, as well as other tariffs specific to Mexico, Canada and China. The next day, a federal appeals court ruled to temporarily reinstate these tariffs.
These rulings do not apply to industry-specific tariffs on imported autos and certain auto parts, which were implemented under a different trade law. For now, the following auto-related tariffs remain in effect and unchanged:
A 25% tariff on imported passenger vehicles and light trucks and a 25% tariff on foreign-made auto parts — including engines, transmissions, powertrain parts and electrical components.
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. The federal trade court ruling would have eliminated those tariffs, but for now they remain in effect.
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. Another order enables carmakers to apply for partial reimbursement of tariffs on imported parts, if the vehicle is assembled in the United States.
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 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.
Still, much will depend on the actions of each auto manufacturer. Ford's announced price increases do not pass full tariff costs on to customers, and according to Deep the company's "approach throughout this evolving situation continues to be doing what’s right for our customers — and our business."
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, but the rush to buy cars slowed some in May.
In its June 10 Auto Market Report, Cox Automotive said used car inventory remains tight. Prices for three-year-old and newer used car prices have decreased slightly in recent weeks but are 4.4% 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 $748 in May.
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, Trump has proposed making loan interest on U.S.-made passenger vehicles tax-deductible. The One Big Beautiful Bill Act, which has passed the House and remains in Senate review, includes a deduction of up to $10,000 a year for car loan interest. Consumers can take the deduction in addition to the standard deduction (they don’t need to itemize in order to claim the deduction). It would begin to phase out for individuals with modified adjusted gross incomes over $100,000 ($200,000 for joint filers) and would be available through 2028.
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, auto loan interest rates and ownership costs are higher now than they were five years ago, they may climb higher if tariffs remain in place.
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. For example, Ford shared that a "From America, For America" employee pricing promotion has been extended through July 4 weekend and includes the three models with planned price increases.
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 ...
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.