Are Sub-$30,000 Cars Disappearing? Trump's Tariff Plans Could Reshape US Auto Market

The automotive industry could be one of the American sectors hit hardest by President-elect Donald Trump's announced tariff plans on Canada and Mexico.

What Happened: The incoming White House administration could significantly impact various industries and influence pricing for everyday goods and less frequently purchased items, such as automobiles.

Several popular vehicles that sell for under $30,000 in the U.S. are currently built in Mexico. A proposed 25% tariff on automobiles imported into the U.S. from Mexico could take these vehicles over this pricing level quickly.

In fact, around one-third of all vehicles below $30,000 in the U.S. are currently built in Mexico, according to data from Edmunds, as reported by the Wall Street Journal. This figure has risen from around one-fifth of all vehicles under the affordable auto price point around 10 years ago.

Popular models like the Ford Maverick from Ford Motor Company F and Nissan Sentra from Nissan were named in the report.

Ford recently announced a $1 million donation to Trump's inauguration and the donation of several fleet vehicles.

The Honda Civic from Honda Motor Company HMC is made at several manufacturing plants, including one in Canada. Import tariffs on Canada could impact the price of this top-selling sedan model.

Kia is another automotive company that could be highly impacted by Trump's tariff plans. The company has several models, including the Forte and K4, which were made in Mexico before being imported into the United States.

The Forte and K4 sedans make up around 18% of Kia's U.S. sales according to the report.

"Everyone's got a pretty big case of anxiety here," Kia America Chief Operating Officer Steven Center said. "In two words: Please don't. Punch me in the arm. Smack me in the head. But please don't put a tariff on."

General Motors Company GM, which also donated $1 million to Trump's inauguration, has several assembly factories in Mexico. The automotive company sources approximately one-third of its U.S. vehicle sales from plants in Mexico.

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Why It's Important: Trump's current plan is for 25% tariffs on items imported from Mexico, which could change a free-trade negotiation the president-elect worked on during his previous White House term.

Mexico has often been a place for manufacturing American automobiles that are known for their cheaper price points to help offset some of the costs of production. Around four million vehicles are made in Mexico annually according to the report, with close to 70% imported to the United States.

The signing of the North American Free Trade Agreement, also known as NAFTA, saw American companies turn to Mexico for cheaper labor rates for workers and ample land to build large manufacturing facilities.

Small sedans and SUVs, some of the most affordable options for consumers, are often manufactured in Mexico. The lower production costs help automotive companies turn a modest profit on these vehicles, which would likely result in losses if produced in the United States.

Tariffs on automobiles made in Mexico could change the sector, with auto companies deciding to move manufacturing to the United States or keep it in Mexico with the import tariffs. Either way, American consumers may face higher costs, whether from tariffs or increased expenses tied to U.S. manufacturing, potentially leading to the disappearance of many sub-$30,000 vehicle models.

A Wolfe Research estimate said $3,000 could be added to the cost of the average car sold in America, the report said.

This could be bad news for American consumers already facing higher costs on other items and comes after automotive prices soared during the COVID-19 pandemic due to supply shortages.

American consumers are paying an average of $700 monthly for loans on new automobiles, compared to an average of $500 back in 2016. Around 20% of American consumers are paying an average of $1,000 monthly for their auto loan payment, according to data from Edmunds.

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