Auto tariffs likely to send used auto prices higher

Prepare to pay more for your used car.

If the U.S. Commerce Department adopts President Donald Trump's proposal of a 25 percent tax on imported new cars and car parts, the higher costs for carmakers to assemble and sell new cars could boost demand for used vehicles, analysts predict.

"The parts would be the most affected for sure, assuming that the administration will put tariffs in place for parts as well," said Augusto Amorim, senior manager for Americas vehicle sales forecasts at LMC Automotive in Troy. "I don't think they'd consider any tariff on the used car at this point."

Automakers have warned their costs to build, and subsequently sell, new cars will rise. That's because every car assembled in the U.S. contains a large percentage of foreign parts, analysts said.

Toyota has said the costs of its cars could rise by thousands. General Motors last week said it would be forced to downsize and cut jobs.

Carmakers of course could choose to absorb some of a 25 percent duty and not raise prices that much, said Maryann Keller, principal of Maryann Keller & Associates in the New York area.

“If a car doesn't have a lot of imported content, they might raise prices slightly and over time adjust it” depending on the imported parts in the vehicle.

For example, a Mercedes Sclass sedan is fully imported, so a 25 percent duty on it would make it "incredibly expensive," Keller said. The 2018 S-class starts at $89,900.

"Would Mercedes raise the price on that car by 25 percent? I don't think so," she said.

But even a nominal hike across all the models, Keller said, might be enough to push customers into the used market. And if a new car is priced higher, its rate of depreciation is now starting at a higher point, said Keller. This will bump up prices on late-model used cars.

Secondly, there are the simple laws of supply and demand, said Ivan Drury, senior manager of industry analysis for Edmunds in Santa Monica, California.

"The used market could be injected with millions of consumers it never had before," Drury said. "It will cause a huge uptick in demand and we will see prices go up across the board for used cars."

The supply of used cars might be hit further if the U.S.-Canadian currency exchange rate suffers. Car dealers in Canada regularly send thousands of used cars to the U.S. to sell at auto auctions. It's lucrative for them because the U.S. dollar is stronger than Canadian currency. But that influx of used cars from Canada could freeze depending on what happens with tariffs, said Amorim.