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Car buyers should prepare for sticker shock as trade war intensifies

Nick Robertson
·Senior Producer

The prices of cars are going up.

New vehicle prices in May 2019 climbed nearly 4% on average — or about $1,320 — over the past year, according to new data from Kelley Blue Book. And impending U.S. tariffs against Mexico may soon ramp prices up even further.

Last week, the Trump administration announced it is planning to impose a 5% tariff on all goods coming into the United States from Mexico, on June 10th. The move is part of an aggressive effort by the administration to curb a surge of undocumented immigrants crossing the southern border into the U.S. President Trump says the tariffs will increase monthly — eventually reaching 25% in October — until the illegal immigration problem is “remedied.”

But the planned tariffs could deal a major hit to Detroit automakers, and whether the Trump administration will hit the brakes before the deadline is very much an open question.

Should the tariffs reach the 25% level, it would cost General Motors (GM), Ford (F) and Fiat Chrysler (FCAU) $6.3 billion, $3.3 billion and $4.8 billion, respectively, according to a new estimate from Deutsche Bank. The U.S. auto industry accounted for 26% of about $350 billion in U.S. imports from Mexico last year.

Those additional costs would be passed on to consumers, which would raise the average price of a new vehicle by about $1,300 dollars, Deutsche Bank estimates.

“Unfortunately, if you are in the market for a car, you’re going to have to delay your purchase or you’re going to have to go to used [cars] if the prices do scare you away,” Ivan Drury, Edmunds’ senior manager of industry analysis, tells Yahoo Finance’s YFi PM.

“Right now, we are seeing a bit of price sensitivity because the average transaction price is bearing between $35,000 and $37,000. You tack on that extra $1,300, it’s going to be a pinch for consumers,” the analyst said.

Jesse Ascani (R) and Montey Ninaus discuss the price of a new Chevrolet Tahoe LT that Ascani went on to buy at the Medved dealer in Denver December 16, 2015. The Federal Reserve hiked interest rates for the first time in nearly a decade on Wednesday, signaling faith that the U.S. economy had largely overcome the wounds of the 2007-2009 financial crisis. REUTERS/Rick Wilking
Jesse Ascani (R) and Montey Ninaus discuss the price of a new Chevrolet Tahoe LT that Ascani went on to buy at the Medved dealer in Denver December 16, 2015. REUTERS/Rick Wilking

While fresh data shows some automakers reporting modest sales gains in May, the industry as a whole is facing significant headwinds. New tariffs could only make matters worse.

“We’ve had a record number of years where we’ve had very high sales — 17 million, upper 16 million units a year. And that’s starting to trickle off,” according to Drury.

“So if you factor in the uncertainty of tariffs — the way that plays into the consumers’ mindset, the way that plays into pricing — it really can have very detrimental effects going forward,” he added.

Drury predicts that even the cost of ride sharing could eventually jump.

“That’ll actually get more expensive, because those consumers — if there’s a Lyft (LYFT) or an Uber (UBER) — they’re going to have to pay more for their vehicle, and [charge] more overall.”

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