New Car Prices Are Ticking Up. Sales “Hangover” is Likely as Trade Wars Heat Up.

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Automotive Industry Inventory Report

Please consider the April On the Horizon Inventory Report, emphasis mine.

March represented yet another set of twists and turns in what has been a
multi-year progression of unprecedented supply, demand, and pricing
dynamics in the new vehicle marketplace.

This latest development comes in the form of tariff-related effects, with
the Trump Administration implementing levies on materials and parts
and moving toward adding surcharges on major vehicle systems and on
vehicles coming from outside the United States.

As these actions are moving from threat to implementation, prices have
already risen more than $1,000 at retail and have reversed a declining
trend that had been playing out for the past eight months.

Consumers, in anticipation of these higher prices, rushed to buy new
vehicles in the current period, with Vehicles Moved hitting a level (1.3MM)
not seen since May 2021. While this provided a boost in the short run, the
”pull ahead” effect of these accelerated sales (estimated to be 153,000 in
March) runs the risk of leading to a hangover effect that depresses results
going forward. That risk is exacerbated if prices run up quickly, if the tariffs
remain in place for a long period of time, and—particularly—if they spark a
retaliatory and escalating trade war that pushes costs and prices even
higher than the initial salvos would suggest.

Much Higher Costs

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Deeper Dive on Tariffs

While the tariff situation has roiled the automotive marketplace, the reality is that we are still at an early stage of their potential effects. In the ten weeks since the Trump Administration came back into power, there have been a number of announcements, withdrawals, pauses, and scope changes in terms of the timing and structure of those levies. In the early stages, Average Marketed Prices stayed relatively steady as OEMs and dealers were in a “wait and see” mode as reality did not meet rhetoric. But starting in late February, retail prices started to ratchet up as that rhetoric heated up and as initial tariffs on steel and aluminum began to go into effect. OEMs, contending with uncertain supply chain costs, began pulling back on incentive plans. And dealers, anticipating price hikes from the OEMs, became less aggressive with their discounting strategies.

As a result of these pressures across the automotive ecosystem, the Average Marketed Price at retail increased by $1,123 from February 23 to March 31, reversing eight months of downward pricing pressure. And this is before the more widespread and costly tariffs on the major parts and cars themselves go into effect.

In an example of how the global supply chain is already affecting prices, it is not coincidental that XL SUVs, Full Size Pickups, and Heavy-Duty Trucks have been leading the charge in terms of those price increases. With V8 engines coming primarily from Canada, models and trims in those segments are an early harbinger of dynamics to come as costs (even threatened ones) get passed from the OEM to the dealer to the consumer.

And consumers are well aware of the risks that these tariffs pose in terms of future cost hikes, with price increases potentially moving from in the hundreds of dollars to in the thousands. To quantify the effect that this had in March, what has historically been around a ~10 point gap in Average Inventory vs. Vehicle Movement change MoM (see 2024 below as an example) moved to a 23-point gap in 2025. The additional “pull ahead” sales related to this wider differential equated to 153,000 units in the current period. With those sales now in the books, results in April and beyond will be that much more challenging, especially if tariffs are deep and of long duration. If so, we may move from worrisome to catastrophic if a significant number of consumers are priced out of the market or put off purchases until prices come down (or at least become more predictable).

Auto Inventory Pull Ahead

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Producer Price Index PPI Plunges Led by a Decline in Gasoline

Earlier today I commented Producer Price Index PPI Plunges Led by a Decline in Gasoline

The Producer Price Index was unexpectedly weak again in March.

Falling Prices Hooray?

Yes, and no but mostly no.

The plunge in the price of gasoline and energy is a sign of a slowing economy. Consumers will like the drop in the price at the pump but the repercussions are ominous.

Impact of Tariffs

I bolded the key items: Prices for steel mill products increased 7.1 percent. The final demand goods less foods and energy rose 0.3 percent.

These are stagflationary items. Falling demand and rising prices.

This was not a good report.

Other than food and energy, prices rose. Prices for steel and aluminum are going to pressure automakers.

This isn’t hindsight. I discussed well in advance.

Seven Charts Show Tariffs Would Harm the US Auto Industry

On January 31, 2025, I commented Seven Charts Show Tariffs Would Harm the US Auto Industry

The CATO institute does a great job explaining why tariffs on Canada and Mexico would be a very bad idea.

Expect Higher Prices

On February 10, 2025 I commented Trump to Impose 25 Percent Tariffs on Steel and Aluminum, Expect Higher Prices

All US consumers of steel and aluminum will pay higher prices, especially the automakers.

The reinstitution of aluminum and steel tariffs across the board is in direct violation of Trump’s loudly bragged USMCA “Best Trade Deal in History”.

Michigan’s Economy Will Be the First Big Loser of Tariff Madness

On April 6, I noted Michigan’s Economy Will Be the First Big Loser of Tariff Madness

Nearly 20 Percent of Michigan’s economy is directly or indirectly related to autos.

Detroit’s automotive executives have shifted into battle mode. They are stockpiling imported components, wrestling with suppliers over price increases and setting up war rooms to figure out how to cut costs.

Trump has proven ability to repeatedly make the same mistakes, needlessly taunt allies, and violate his own treaties.

No good, and lots of bad will come from this, just as happened before.

Tariff Strawmen and Why Prices Didn’t Rise in Trump’s First Term

On April 8, 2025, I commented Tariff Strawmen and Why Prices Didn’t Rise in Trump’s First Term

A reader thinks that because prices didn’t rise in Trump’s first term, the same is true now.

Why Trumps Tariffs Didn’t Cause Price Hikes Before

1. Tariffs were much smaller and targeted to specific countries.
2. Tariff avoidance. Trade shifted from China to Mexico and Vietnam
3. The dollar strengthened.

I have discussed this before, many times but refuting nonsense is hard when people have TDS Type II, and believe anything Trump says.

Now the dollar is weakening, tariffs are difficult to avoid, and tariffs are much larger.

Trump and his believers said tariffs won’t cause price hikes and tariffs are paid by China, Mexico, and Canada, etc.

One of us was right. And it wasn’t Trump and the economic illiterates who believe every fool thing he says.

More By This Author:

Producer Price Index PPI Plunges Led By A Decline In Gasoline
How Will Parts Hoarding And The Surge In Imports Impact GDP This Year?
Trump Tariff Pause Ignites Another Mad Dash For Imports