Today’s Car Market: Are New Car Prices Going Up or Down?
New car prices dropped slightly to start 2025, but they’re expected to rise as new tariffs take effect.
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When 2025 began, the average transaction price on new vehicles was ticking down a bit from past highs. But new car prices aren't likely to continue trending downward, mainly due to the Trump administration's tariffs on vehicles and parts to make them. The latest of these — a 25% tariff on cars and parts imported into the U.S. — was announced on March 26.
The full effect of tariffs on consumers remains to be seen — and may not be seen right away, as dealerships work through their existing vehicle inventory. But, it's likely that automakers will eventually pass some portion of tariff costs on to car buyers.
Will car prices go up under Trump?
With the following tariffs either implemented or planned, it's likely that car buyers will see car prices rise in the coming months.
On March 26, President Trump announced a 25% tariff on all imported passenger vehicles and light trucks, as well as key automobile components including engines, transmissions, powertrain parts and electrical components. Vehicle tariffs will be collected starting April 3 and parts tariffs no later than May 3. These tariffs will be on top of other existing and planned tariffs.
The March 26 announcement clarified that automakers of vehicles complying with the U.S.-Mexico-Canada Agreement will be able to certify content in their cars that is U.S. made, and the 25% tariff will only apply to the value of non-U.S. content. Until this certification process is established, content of USMCA-compliant automobiles will remain tariff-free.
This follows two earlier actions. On March 4, a tariff on all goods imported from China, which includes parts to make cars, doubled to 20%. And since March 12, 25% tariffs have been in effect for all steel and aluminum imports, both products central to the production of vehicles.
During an Industry Insights and Sales Forecast call on March 26, Cox Automotive Chief Economist Johnathan Smoke said tariffs are predicted to add at least $3,000 to the production cost of U.S. made vehicles, and $6,000 or more for vehicles assembled in Canada or Mexico. He added that tariffs are likely to disrupt North American vehicle production by mid-April, meaning "lower production, tighter supply and higher prices are around the corner, reminiscent of 2021."
Also, a discussed elimination of the EV tax credit could also cause prices of certain electric vehicles and plug-in hybrids to eventually rise. Members of the Senate recently introduced legislation to end the EV tax credit (currently up to $7,500 for new vehicles and up to $4,000 for used) and to add a $1,000 tax per EV for road repairs, .
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.
Why are cars so expensive now?
Beyond any impact from tariffs, new car prices are high for three reasons:
High consumer demand following the Covid-19 pandemic has enabled car manufacturers and dealers to keep prices high.
Ongoing inflation has 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.
New car prices climbed 22% since 2019
According to the consumer price index (CPI), which is a Bureau of Labor Statistics (BLS) 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. According to the CPI report released on March 12, the new car index declined in February, but only by 0.1 percent.
Average new car prices are still approximately $11,000 higher than they were before COVID-19 hit. They’re hovering near 2022’s all-time highs, which J.D. Power places at $47,329 and Cox Automotive sets at $49,926.
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 $734 in February.
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.
Are used car prices dropping?
Yes. According to Cox Automotive, in February 2025 the average used-vehicle listing price was $25,006 — a decrease of approximately $140 from the previous month.
Used vehicle prices have steadily decreased since early 2024; however, used car inventory has been tight due to fewer off-lease vehicles being returned and owners keeping their cars longer.
If new car prices increase, we could see a repeat of car buyers turning to used cars as they did during the pandemic. The result then was further tightening of low inventory, which drove used car prices higher — in some cases, higher than new car prices.
Car ownership cost presents an additional challenge
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.
Is now a good time to buy a car?
If you anticipate wanting or 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're likely to climb even higher. Buying now, before car prices rise and inventory shortages hit, could save you money.
During the Cox Automotive call, Senior Economist Charlie Chesbrough said new car pricing is already changing in the marketplace and not in the buyer's favor. With auto incentives declining, dealers less likely to negotiate price and the potential for production disruptions, Chesbrough said the "new vehicle market is looking at a perfect storm for a return of inflation."
To reduce car costs as much as possible before buying, follow a few simple steps.
Check online pricing guides such as Kelley Blue Book, Edmunds or NADA guides to know what price you should pay.
If financing, compare auto lenders to find the best rate.
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.
