Automakers Will Cut Incentives To Avoid Big Price Increases

Tariffs have left the automotive world spinning as automakers rush to build up US inventory or shuffle around what they have to try to keep pricing steady for as long as possible. Some manufacturers have employee pricing deals, while others like Subaru straight-up raised prices on select models. What you won’t see reflected in the sticker price, whether it’s higher or holding steady, is the loss of incentives.

The Looming Inventory Price Imbalance

Dealers face a big problem: the incoming inventory will likely be more expensive than cars currently on the lot because of tariffs raising the cost of materials and production. Selling what they have now at any premium can help absorb the impact of more expensive inventory coming later this year. There’s a 25% tariff on materials crossing the border, and an additional 25% on imported vehicles as a whole. But there are all kinds of exceptions that, frankly, seem to change on a weekly basis.

Prices Are Already Fluctuating Throughout The Industry

Many automakers have so far avoided raising prices dramatically, if at all, to keep buyers happy. There’s also likely some politics happening here, trying to avoid direct backlash from the White House over why the SUV you wanted is suddenly $3,000 more expensive. It’s a sticky dilemma, as we’ve already seen the Trump administration point fingers at companies such as Walmart over tariff-related price increases.

The average new car price jumped 2.5% in April, the biggest increase in five years, and average incentives that were once as high as 10% off the sticker dropped to 6.7% in the same month. Zero percent interest finance deals pretty much fell off a cliff. Of course, there’s no specific timeframe for incentives disappearing and vehicle prices increasing; that will obviously vary between companies and depend on a litany of factors. But as dealers move through pre-tariff inventory, changes will need to happen once the inventories run dry.

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Pricing Impact Spread Out To Everyone

The pricing impact won’t just hit imported vehicles, or vehicles with heavy import content. Automakers will likely try to spread out the costs across all models as much as possible, mitigating tariff premiums that might be high on some vehicles with smaller increases for unaffected cars. Other automakers may just remove or postpone more affordable trims from their lineup, as Dodge recently announced with the Charger Daytona R/T.

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Drops In Production And Sales Are Expected

US vehicle sales are expected to drop this year, but there’s no consensus yet on how much. Estimates range from a drop of 400,000 to 1.1 million vehicles due to tariffs, and that’s a big deal. Putting it into perspective, a 1.1-million drop translates to 8%, and that’s just for automakers in the US. On the production side, Mexico and Canada could see a drop by nearly half due to the shuffled economics of tariffs hitting otherwise USMCA-compliant vehicles.

As of now, compliant vehicles only have to pay tariffs on parts content sourced from Canada and Mexico instead of the entire vehicle. But getting all the financials figured out is a numerical nightmare.

Source: Bloomberg