Analysis-Why Trump's auto tariffs will hurt his working-class supporters

By Kalea Hall, Nathan Gomes and Nora Eckert

DETROIT (Reuters) - Working-class car buyers will be the hardest hit by U.S. President Donald Trump’s 25% tariff on imported vehicles because almost all low-cost new cars sold in the United States are built elsewhere.

Lower-income buyers will suffer another blow from expected hikes in used car prices as demand surges and supply shrinks.

New cars priced under $30,000 are already rare as the average new-vehicle price approaches $50,000. The only way automakers can eke out profits on economy cars, analysts say, is to build them in nations with lower manufacturing costs.

A Reuters review of data from two auto research firms found just 16 models with an average sticker price less than $30,000 and only one, Toyota's Corolla, that is assembled in the United States. All others are made in Mexico, South Korea, or Japan.

Slapping a 25% tariff on these low-end cars may force price increases that make them unaffordable to their target market or cause some automakers to abandon them entirely, industry analysts said.

“New vehicles across the board are going to be more expensive," said Sam Fiorani, vice president of research firm AutoForecast Solutions. "That's going to push more buyers into the used market, which will also raise the price of used vehicles.”

Burnis Carrington, of Monroe, Louisiana, is shopping for a used car instead of a new one, as he worries about tariff-driven price increases. 

“Most families in need of a family car are paying prices that approach nearly half of what their home may be worth,” he said. “The underlying problem is still that nothing is being done to make the vehicles made domestically more affordable.”

Trump’s political base of rural supporters could be among those bearing the brunt of the import taxes. About half of voters reporting household incomes of less than $50,000 annually backed Trump's 2024 election, along with 56% of voters without college degrees, according to an Edison Research exit poll.

Trump told NBC news on Saturday that he "couldn't care less" if automakers hike prices, "because if the prices on foreign cars go up, they're going to buy American cars."

Many of those foreign cars are made by American automakers, including three under-$30,000 vehicles from GM: The Buick Envista and Chevrolet Trax and Trailblazer. All three are made in South Korea. GM also makes hundreds of thousands of its hot-selling full-sized trucks in Mexico.

Trump argues tariffs will spark a boom in the U.S. auto industry. Some experts contend that high import taxes will have the opposite effect.

“As vehicle affordability decreases due to higher prices, households may begin prioritizing other areas of their budget, cutting back on discretionary spending or delaying large purchases," conservative supply-side economist Arthur Laffer wrote in a March report.

EXPLODING 'BUSINESS CASE' FOR CHEAP CARS

Detroit automakers General Motors, Ford, and Stellantis, the maker of Jeeps and Ram trucks, have discontinued most entry-level models in recent years to focus on highly profitable trucks and SUVs. That has left the economy-vehicle market almost entirely to Asian automakers.

“I just don't see them ever really going back there,” said Karl Brauer, executive analyst at iSeeCars.com.

Ford makes its least expensive vehicles, the compact Maverick truck and mid-sized Bronco Sport, in Mexico. They both sell for more than $30,000 on average, according to data from Cox Automotive, based on average sticker prices of models sold in January and February. The same is true for Jeep's most affordable model, the Compass, which it builds in Mexico.

The under-$30,000 models built by Nissan, Mazda, Hyundai, Kia, Toyota, Subaru, and Volkswagen are almost all built in Mexico or South Korea, according to AutoForecast Solutions. 

Honda makes its top-selling Civic in Canada and the United States. Its compact HR-V crossover is made in Mexico. The average sticker prices for both models were slightly above $30,000, according to Cox Automotive.

The margins on these vehicles are low, and their buyers are price-sensitive. That means high tariffs might make them impossible to sell at all, Brauer said. 

A 25% tariff, he said, will “completely blow apart the business case” for entry-level vehicles.

Cox Automotive estimates that 25% tariffs will add $3,000 to the cost of a U.S.-made vehicle and $6,000 to vehicles made in Canada or Mexico.

Ford said it is still evaluating the potential impact of tariffs on lower-cost vehicle prices. The other automakers cited in this story did not comment.

RISING USED CAR PRICES

Some industry experts compared the potential impact of high tariffs to the supply-chain shortages that drove up new and used vehicle prices during the pandemic.

Used car prices have eased since then. The average used-vehicle listing price was $25,006, down 1% from a year ago.

But the supply of more affordable used cars remains relatively tight, according to Cox. Dealers have about a 30-day supply of used cars below $15,000, or about 12 days less than the overall used-car supply.

"Used vehicles in the $15,000 to $25,000 range will be the most in demand,” because automakers will abandon that production, Fiorani said.

Phoenix resident Eric Fenstermacher, 44, started car-shopping more urgently as Trump started threatening tariffs. The IT worker bought a 2022 Honda Accord in mid-March after struggling to find a new vehicle he liked for less than $30,000.

"I feel extremely relieved," Fenstermacher said. "I'm glad I got this done when I did. Otherwise, this price would have gone up."

(Reporting by Kalea Hall in Detroit and Nathan Gomes in Bengaluru; additional reporting and David Shepardson in Washington; editing by Brian Thevenot and Rod Nickel)