By Dean Seal

The auto industry is headed for a new reality of higher prices and tighter margins if President Trump follows through on a proposed 25% tariff for cars and auto parts made overseas.

The president's latest proposal, set to take effect early next month, is expected to increase car prices by thousands of dollars starting this summer as automakers look to pass some of their new import costs on to consumers, analysts said Thursday.

The cumbersome tariff seems to be a negotiating tactic in Trump's evolving trade war and is liable to change at any time, Dan Ives and other Wedbush analysts said in a research note. Consumers and the auto sector would welcome a lighter levy.

"This initial 25% tariff on autos from outside the U.S. is almost an untenable head-scratching number for the U.S. consumer," the Wedbush analysts said.

The new import duties Trump announced at the White House on Wednesday would be a "hurricane-like headwind" for nearly every global automaker, including most based in the U.S., the analysts said.

The influx of new costs would likely result in the average price of cars rising between $5,000 and $10,000, according to Wedbush's estimates.

The effects wouldn't be immediately felt if the tariffs go into effect as planned on April 3, analysts said. Dealers would probably have sufficient vehicle and auto-parts inventories to get through next month and into May.

The real cost effects from the tariffs would start to hit around mid-May and then accelerate going into the third quarter, Bernstein analysts said in a research note. Overall, the unmitigated effects of the tariffs in their current form on the auto sector would likely be $110 billion, about $6,700 a vehicle, the analysts said.

The cost burden wouldn't be equal across automakers. Ford Motor and General Motors could lose up to 30% of their earnings before interest and taxes this year because of the levies, even with higher prices and sourcing adjustments, according to Bernstein's note.

Stellantis is better positioned than its Big Three compatriots, as a lot of its Mexico-produced models still use a high degree of U.S. components, the Bernstein analysts said.

Tesla is in an even better position, as it has more localized production and is better insulated from trade risk, the Bernstein analysts said. Rivian would also likely fare better than its car-making rivals because of its heavily domestic production, though both Rivian and Tesla still use components that are produced overseas, UBS analysts said in a separate note.

For every other automaker, the tariffs represent a real drag on margins and near-term earnings, the Bernstein analysts said. "This is not a symbolic move--it materially alters the cost structure of U.S. auto operations," they said.

Trump could still reverse course on the 25% duty, though that seems less likely now than it has in previous rounds of tariff proposals, according to the Bernstein note. Those prior efforts quickly reversed or stalled, while this one looks more coordinated and operationally detailed, the analysts said. They remain hopeful that enough pushback from Wall Street will give the Trump administration pause to reconsider.

If the levies go forward as proposed, it could eventually push General Motors and Ford to move production of certain vehicles from Mexico and Canada to the U.S., UBS analysts said in their note. Those companies have excess U.S. capacity, though it isn't tooled to produce the vehicles they're making abroad.

It would take some time and capital for such a retooling. Automakers may want to wait and see if Trump's trade policies remain in place beyond his administration, the UBS analysts said. Auto parts suppliers are even less likely to shift production than car makers, they said.

Write to Dean Seal at dean.seal@wsj.com

(END) Dow Jones Newswires

March 27, 2025 14:39 ET (18:39 GMT)

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