Skyrocketing Car Prices have Driven Crisis-level Car Unaffordability
Since 2020, the total cost of owning a car has risen approximately 40.5%, and the average price of a new car has risen above $50,000. With nearly a fifth of new cars having monthly payments equal to or above $1,000, there is a stark difference between the relatively stagnant cost of car-ownership in the 5 years preceding the pandemic and the skyrocketing prices seen today.
Car Price Index from 2016-Present, FRED.
The high cost of car-ownership has financially strained Americans, who are borrowing more money to pay car loans than any time in history. Car-loan delinquency levels have reached levels as high as in the 2008 financial crisis. 1.73 million vehicles were repossessed in 2024, the highest number since 2009, and auto loan defaults exceeded 2.3 million. With car payments more expensive than ever and rising levels of default and repossession, it's clear that car-ownership is becoming unaffordable to a growing proportion of Americans.
Tariffs on Vehicles and Components Will Drive Car Prices Higher
Throughout 2025, the Trump Administration implemented tariffs on imported car parts and metals crucial to component construction including a 25% tariff on imported passenger vehicles and major car parts, such as engines, transmissions, powertrain parts, and electrical components in April; a 50% tariff on steel and aluminum in June; and a 25% tariff on imported medium and heavy-duty trucks and truck parts, including engines, transmissions, tires, and chassis in November.
These tariffs have raised the cost of car-assembly and from a macro-economic perspective, will lower car supply within the vehicle market and reduce price competition that anchors car prices. Additionally, manufacturers will not absorb car-assembly costs: the Federal Reserve Bank of Richmond estimates that vehicle tariffs will be completely passed through to customers. Thus, the Administration’s tariffs are functioning as an effective tax on US car-buyers.
How high will car prices rise due to the Administration’s tariffs? Global research forecasts that combined tariffs on vehicles and parts will drive an increase of around $2,580 in cost for the average vehicle in the first effective year of tariffs, $2,806 per vehicle by the second, and $3,258 per vehicle, or an extra 7.3% on the average retail price. “There is no way to keep $10 billion in tariffs from affecting consumer auto prices” Patrick Anderson, CEO of Anderson Economic Group stated. With most Americans already struggling to make their car payments, the 2025 vehicle tariffs will raise car payments and worsen car unaffordability in America.
Even worse, tariffs and rising prices are raising the income threshold necessary for car ownership and eliminating possibilities for car ownership among lower-income workers. Pre-pandemic, more than half of all 3-year-old used vehicles in the U.S. were priced under $20,000. This year, that number has dropped to 11%. The lack of affordable used cars in the market has priced out lower income workers from car ownership, and rising car costs due to tariffs will inevitably exacerbate unaffordability and increase the proportion of American workers unable to own any car, new or used.
Tariffs Will Raise Costs of Auto-repair and Harm the US Auto-Repair Industry
The consequences of tariffs on car components are not limited to car-manufacturers. The automotive repair industry is extraordinarily reliant upon imported auto parts, which often comprise up to 90% of auto parts used in repair shops. With nearly all automotive parts suppliers saying they plan to pass through 100% of the tariffs, the vast majority of American auto-repair shops will see up to 25% higher costs of purchasing components for repair, which will drive shops to increase costs of vehicle repair services. According to a Michigan repair-shop owner, “on a $1,000 repair job, several hundred dollars more are added onto labor thanks to tariffed parts.”
Heightened repair costs driven by component tariffs will have a two-sided economic impact on both repair shops and consumers: consumer credit will be strained by higher costs of repairs that increase total costs of car ownership, which will negatively impact car affordability and incentivize Americans to delay car repairs. On the other end, the automotive repair industry will see reduced demand for repairs as a result of higher costs, which will cause decreasing revenue. Economically, car-component tariffs will create a lose-lose situation for car-owners and the auto-repair industry.
Component Tariffs and Higher Repair Costs Will Raise Americans’ Insurance Premiums
The increased cost of car components and repairs due to tariffs will have secondary impacts on car insurance rates. Car insurance firms, which are responsible for covering and replacing damaged components or vehicle parts, will raise insurance premiums to adjust to the increased cost of vehicle repairs.
According to Stephen Crewdson, senior director in the Global Insurance Intelligence Group at J.D. Power, “Auto insurance premiums are a reflection of the cost to pay claims… …As these claims costs go up or down, premiums will eventually follow.” Projections from the APCIA show the impacts of higher repair costs due to tariffs will be reflected in insurance premiums and car bills within the next year, further burdening American car-ownership.
The Bottom Line:
The second-term Trump Administration’s tariffs on passenger vehicles, trucks, and car-components implemented this year will raise average car prices, costs of repairs, and car insurance premiums, which will drive negative economic impacts on the US Auto-repair industry and further exacerbate the car unaffordability crisis. Tariffs will contribute to the ‘pricing out’ of lower-income workers from car ownership, and current car delinquency and financing statistics reflect a continual decline in car-ownership possibilities for average Americans.
In order to make vehicle ownership accessible for Americans, tariffs on imported vehicles and car-components must be reduced or eliminated. Current duties in place prevent price competition from international car manufacturers and heighten costs of purchase, repair, and insurance for car-owners. With vehicle delinquency rates, repossession levels, and car-payment costs at an all time high, it’s clear that the current US macro-environment needs tariff policy reform to improve car affordability in America.
If you’re interested in learning more about how tariffs have affected consumer conditions, read our other posts about how tariffs are destroying American farmers here