Quick Facts About New Car Prices
- The 25% tariffs, which began April 3, can add several thousands of dollars to the price of a new car. Tariffs on car parts will begin on or before May 3.
- For now, new car average transaction prices held steady year-over-year and are more than $9,000 higher than pre-pandemic times five years ago.
- Shoppers could find great deals on electric cars and overstocked new cars from brands like Jaguar, Lincoln, and Dodge. Some shoppers may see average car buying incentives of about $3,300.
If you’re currently shopping for a vehicle, you may want to hurry up and find one. Our experts predict that tariffs could push up car prices in the next few months.
Tariffs of 25% on all auto imports began April 3, just as the spring car buying season kicked into high gear. By May 3, car parts face the same fate. Any production disruptions from tariffs, which we are starting to see, could send car prices soaring. Already, some vehicles are piling up at ports, and others are on a production freeze. Still, carmakers like Hyundai pledge to keep prices the same.
Car shoppers have become accustomed to paying more than the manufacturer’s suggested retail price (MSRP). In recent years, they watched car prices skyrocket with no apparent end in sight. Even as prices started to drop, they now appear stuck in neutral. The situation left many shoppers scratching their heads, and the question our experts hear most is, “When will new car prices drop?”
New vehicle price inflation all but disappeared by the end of last year. Still, car prices have increased dramatically since pre-pandemic times. Read on for guidance if you plan to purchase a vehicle as we dig deeper to answer concerns about car prices.
- New Car Prices Up Over Last Year
- New Car Inventory Update
- Market Uncertainty: Shoppers in a Mad Rush to Buy New Cars
- Shop Around for the Best Offer on Your Trade-in
- The Higher Costs of Car Insurance
- What to Expect: Looking Ahead
New Car Prices Up Over Last Year
Kelley Blue Book data show average transaction prices were $47,462, up 1% from last year, and down 1% from last month. Incentives to attract shoppers to new vehicles were 7%, or about $3,300.
Overall, average transaction prices are $9,300 higher than in March 2020, just as the COVID-19 pandemic gripped the nation. At that time, the average transaction price for new vehicles was $38,162.
However, prices could soon rise, according to Cox Automotive Executive Analyst Erin Keating.
“All signs point to higher prices this summer, as existing ‘pre-tariff’ inventory is sold down to be eventually replaced with ‘tariffed’ inventory,” Keating said. “How high prices rise for consumers is still very much to be determined, as each automaker will handle the price puzzle differently. She said to expect that new vehicles directly impacted by the 25% tariff would see price increases in the range of 10%-15%.
“In addition,” she added, “considering the market dynamics, we also anticipate seeing at least a 5% increase in prices of vehicles not subjected to the full 25% tariff. There is no way around it: Tariffs are going to push new-vehicle prices higher in the U.S.”
Cox Automotive is the parent of Kelley Blue Book.
The volume-weighted average transaction calculation reflects all the car market realities, including high-volume vehicles like pricey pickup trucks influencing the number. For example, the report shows that full-sized pickups posted an average transaction price of about $63,600.
Additionally, electric vehicles posted average transaction prices of $55,273 in February. Electric car transaction prices were higher by about 15% compared to the overall car industry. The nation’s largest electric vehicle (EV) seller, Tesla, saw its average transaction price increase 3.5% year-over-year to $54,582.
What Drives New Car Prices
- Inventory availability
- Manufacturer incentives
- Dealer discounts
- Trade-in vehicle value
New Car Inventory Update
According to the Cox Automotive vAuto Live Market View, tariffs triggered a surge of car sales in March and inventory decreased 10.2% month-over-month to a new car supply of 70 days by the end of March. While you’re likely to find plenty of vehicles from Jaguar, Lincoln, Dodge, and Ram, you’re less likely to find the exact model you may want from Lexus and Toyota.
Dealerships track what new vehicles they have on hand to sell using a measurement called “days of inventory,” or how long it would take them to sell out at today’s sales pace if the automaker stopped building new ones.
Market Uncertainty: Shoppers in a Mad Rush to Buy New Cars
Amid the 25% car tariffs on imported cars, the new car landscape has dramatically shifted in the last several weeks. Shoppers appear to be pushing up their car buying needs to snap up existing deals before the trickle-down effect of tariffs.
Still, there are disruptions. We’ve seen reports of paused shipments and auto production lines, temporary layoffs, and even a canceled car. Volkswagen reportedly will add a tariff “import fee” as a line item on window stickers of its cars. Meanwhile, Hyundai and Genesis plan to hold the line on raising the manufacturer’s suggested retail price (MSRP) until at least June 2. However, 2026 Hyundai models will no longer come with complimentary maintenance of three years or 36,000 miles.
RELATED: Amid Tariffs, Some Automakers Pledge Flat Prices (For Now)
Still, shoppers heading out to purchase a new vehicle should watch dealership pricing. While carmakers set the stage for pricing, dealers ultimately close deals. They could easily add markups or dealer fees to compensate for any losses they could incur due to tariffs along the way.
For now, new car buyers should search for incentives, cash back deals, and expand their shopping boundaries if needed to find the right deal that works for their budget. Qualified buyers with stellar credit will discover low-interest-rate offers and lease deals, including on new electric vehicle models leftover from 2024.
Creditworthy buyers can secure deals on last year’s EV models, like a 2024 Honda Prologue with 0% APR financing for 60 months, good through the end of April.
A Cox Automotive report shows that tariffs will directly impact 40% of new cars priced under $40,000. The report estimates that the average tariff on Canada or Mexico-assembled models would increase the cost of a vehicle by nearly $6,000, amounting to almost 17% of an average new vehicle price. While it’s hard to say if consumers will feel the brunt of that, some of the hardest-hit vehicles could include the compact Ford Maverick pickup truck, with its pricing starting at $28,145, including destination fee.
Shop Around for the Best Offer on Your Trade-in
Trade-in value is another factor driving car prices. A lack of used vehicle stock has kept those prices higher, giving credence to the idea that buying a new vehicle might be cheaper than purchasing a certain used model only a few years old. As a result, it’s still a great time to trade in your car.
Dealers value your trade-in partly based on what they need in stock. On the flip side, they’re more likely to offer an excellent deal to buyers on a car fewer people are looking for currently. In other words, a car shopper trading a 2018 Honda Civic for something else will be much happier with the trade-in appraisal than one with a 2021 Jeep Grand Cherokee.
Car buyers should prepare to shop their trade-in around. It’s slightly more complicated to pull off, but selling your old vehicle to one dealership and buying your new car from a different one may make sense if the final invoice numbers work out in your favor. Use the Kelley Blue Book Instant Cash Offer tool to shop your trade-in vehicle at nearby dealerships. When you let the deals come to you, selecting the best trade-in offer for your situation is easier. Remember, you can always negotiate the offer, and pitting one offer against the other is not unheard of.
The Higher Costs of Car Insurance
With tariffs in place for cars and soon for car parts, it’s likely auto insurance rates will climb higher, even as car owners are already stretched to their limits on insurance costs. According to the Bureau of Labor Statistics, car insurance costs were 7.5% higher in March than a year earlier. Bankrate says car insurance averages about $2,685 a year for full coverage. Full coverage, called comprehensive car insurance, covers natural disasters like wildfires, hurricanes, and accidents. Before you seal the deal and sign anything for a new vehicle, compare quotes for car insurance.
What to Expect: Looking Ahead
There’s so much to digest here it’s hard to say exactly what to expect except a chaotic future for car buying. At this moment, economists initially forecast two interest rate cuts in 2025, after three last year. However, it’s anyone’s guess what could come, or nothing at all could happen. According to economist Jonathan Smoke of Cox Automotive, the Federal Reserve’s rate change, which takes time to trickle through the economic system, reduces monthly car payments by approximately 3%.
“For economists like myself, the unthinkable is coming true, with tariffs being applied to our free trade partners across North America. We have no history to study for this, but there will be implications,” Smoke said. “It is not even clear if the U.S. government has a way to efficiently track the movement of goods and impose duties, but set that aside: Production will be disrupted, supply will be restricted, and prices will go up. This is happening when supply is tight already.”
He added, “Consumers with potential buying plans are very likely to act swiftly, so the short term is likely positive for sale volume. But once prices shift higher, demand will decline. It will also jeopardize the trajectory of the overall economy, further weakening growth potential later in the year.”
What to Do If You Need a Car Now
For now, go shopping for a new car before manufacturers potentially increase vehicle prices or dealers take measures into their own hands. Before buying, research your options and look for deals, especially on last year’s models, which are still plentiful on car lots. Make sure to shop ahead for a car loan if you’re not paying cash.
RELATED: Paying Cash for a Car in 2025: Consider the Pros and Cons
Editor’s Note: This article has been updated for accuracy since it was initially published.
