Amid U.S. President Donald Trump’s order to impose costly tariffs on steel and aluminum, some automotive experts are advising Canadians in the market for a new or used vehicle to accelerate their timelines to get ahead of possible price hikes.
“If you’re going to buy a car sometime in 2025, it would probably be good to speed it up. One hundred per cent,” says Baris Akyurek, vice-president of insights and intelligence at online marketplace AutoTrader.
Others warn that even signed orders come with uncertainty, and improvements in the state of the North American auto industry can provide a buffer of sorts to those buying a new vehicle in the weeks ahead.
Trump signed an order late Monday to impose 25 per cent tariffs on all steel and aluminum imports coming into the U.S., including from Canada, a key metals supplier to the States. The new rules are set to take effect on March 12.
But he might not stop at steel and aluminum inputs — Trump also floated placing tariffs of between 50 and 100 per cent on all Canadian-made vehicles entering the U.S. during a Monday evening interview on Fox News.
The moves come less than a week after Canada seemingly secured a 30-day pause on blanket tariffs covering all Canadian exports to the U.S. amid renewed promises to address Trump’s concerns at the border.
Trump previously imposed import taxes on Canadian steel and aluminum during his first term in office back in 2018. Those restrictions that lasted for nearly a year until Canada, the U.S. and Mexico signed a renegotiated trade deal.
Canada’s automotive industry is particularly vulnerable to steel and aluminum tariffs, experts warn.
Steel and aluminum inputs that comprise many of a vehicle’s internal parts and auto body will sometimes cross the Canada-U.S. border multiple times before a finished auto rolls off the assembly line and onto a dealer’s lot.
Those impacts are compounded if Canada responds to the U.S. with retaliatory tariffs, which happened in 2018.
Erik Johnson, senior economist at BMO Capital Markets, tells Global News that primary and fabricated metal inputs work out to about 13.2 cents per dollar of automotive output in that value chain.
If those inputs suddenly become up to 25 per cent more expensive, that becomes a significant cost for automakers to absorb during the assembly process, he says.
The average price of a new vehicle could rise US$400 to US$700 under the new trade restrictions, Johnson estimates, but he warns that could be closer to US$1,000 “if domestic U.S. producers also raise their prices in response to the tariffs.”
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“The longer this goes on, the more meaningful an effect it’s going to have on new vehicle prices in the North American auto market writ large,” he says.
Johnson adds that one saving grace for Canadian metals companies and parts makers is that the loonie is around 11 per cent weaker compared to the U.S. dollar than back in 2018 when the tariffs were last applied. That makes Canadian steel and aluminum cheaper for American manufacturers to import, and “could cushion the blow somewhat if exchange rates remain relatively steady between now and March,” he says.
Vehicle market getting back in gear
Ahead of a looming trade dispute with the U.S., Canada’s new and used vehicle markets had shown signs of normalizing after pandemic-era disruptions tied to supply chain kinks and semiconductor shortages.
Akyurek tells Global News that average prices for new vehicles were down 2.9 per cent year-over-year in January to just over $65,000, while the used market saw double that annual decline.
“They’re still higher compared to 2019 levels, but prices are slowly coming down,” he says.
New vehicle inventories are largely restocked and sales interest has been picking up, Akyurek says, thanks in part due to lower interest rates. Without tariffs, which he calls the “elephant in the room,” AutoTrader projects the sector will see more growth in 2025.
If Trump delivers on steel and aluminum tariffs, it would likely drive up new car prices, Akyurek says.
Specific import taxes on steel and aluminum would put significantly less pressure than the threatened blanket tariffs currently put on hold, which he warns could drive costs for manufacturers up in the thousands of dollars if imposed.
“Some, if not all of it will be passed on to the consumer,” Akyurek says. “So obviously, when that happens, prices go up.”
Johnson says that for vehicles that are made to order or those that are mid-production, tariff costs could be passed through very quickly in the manufacturing process.
That’s because automakers don’t keep vast supplies of parts on hand in a typical production cycle — the industry operates largely on a just-in-time manufacturing model — and any goods crossing the border will immediately be hit with import taxes, forcing manufacturers to absorb or pass on the costs.
Johnson says some manufacturers may attempt to front-run the looming tariffs by ordering supplies in bulk just ahead the deadline for import taxes, but this would only serve to delay the higher costs.
And when new vehicle prices start to rise, Johnson and Akyurek note that the used car market will see demand and price increases as prospective buyers are boxed out of the new market.
The good news is, with inventory levels back up to historic levels, there’s a decent supply of vehicles already sitting on lots that won’t face price pressures from tariffs.
That could provide a buffer for new car prices in the early days of a trade war, Akyurek says.
“Thankfully, we have cars out there that are not going to be impacted, which is very good news for the market. So I think we can absorb it for a while.”
How can Canadian consumers beat tariff impacts?
Johnson notes there are some vehicle makes that are primarily assembled in Canada where parts are not crossing the U.S. border frequently and are therefore insulated from tariff impacts.
He says Toyota RAV4s as well as Honda CR-V and Civic models are among those manufactured domestically in Canada, whereas American automakers are more likely to rely on the integrated North American supply chains for their vehicles.
Johnson is unsure Canadians need to start pounding the pavement at their local dealership.
Canada’s officials have “leeway” to negotiate with Trump ahead of the March 12 deadline, he notes, and could carve out exemptions for Canadian suppliers before the order comes into effect.
And with solid inventories and automakers likely readying their manufacturing processes for potential tariffs, Johnson expects at least a short-term reprieve before tariffs spur larger price hikes.
But he adds that if consumers are eyeing a vehicle that requires a long lead-time before it’s assembled and ready to drive off the lot, “that’s something that would be a little bit more of a focus of potentially wanting to accelerate, depending on how this all pans out.”
Akyurek recommends that anybody who was already planning to make a vehicle purchase in 2025 accelerate their timeline for buying to get ahead of any possible price hikes.
While Trump has delayed imposing tariffs on Canada in the past — first promising the blanket tariffs would come on day one of his presidency, and then at the start of February, and now on hold potentially until March — Akyurek believes he will make good on the running threat.
“Tariffs have been one of the keywords that we keep hearing since Trump took office. So I think it would be naïve to assume that they will not happen at some point, at some capacity,” he says.