The insight: The vast majority—80%—of automakers’ $30 billion tariff costs next year will be passed along to the consumer, according to a report by AlixPartners. The consulting firm expects car prices to rise by $1,760 on average—which will slash US auto sales by 1 million over the next three years.

The big picture: Tariffs are making car ownership more unaffordable, even as sticker prices seem to be holding steady as dealers work through existing inventory and try to entice consumers looking to get ahead of price hikes.

• Automakers are reducing rebates, limiting access to low-cost financing, and hiking delivery charges by up to tenfold to recoup some of their costs, per Bloomberg.
• That’s driving up the prices that consumers pay. The average transaction price (ATP) for a new vehicle spiked 2.8% MoM in April to $48,811—a bigger increase than is typical for the period, per Kelley Blue Book—and was mostly unchanged in May.
• As of May, the average monthly payment on a new car stood at $756, according to Cox Automotive—not far off the high of $792 in December 2022.

The outlook for used vehicles: As new cars become increasingly unaffordable, used car dealers are capitalizing on the shift in demand. CarMax’s combined unit sales across retail and wholesale totaled nearly 380,000 in Q1, up 5.8% YoY, helping it increase revenues and profits more than expected. CEO Bill Nash expects the company to grow sales and market share this year, as tariffs disrupt vehicle supply and drive shoppers to seek more affordable options.

Our take: Cars are an essential expense for a majority of Americans. But as the cost of ownership (including insurance, maintenance, and gas) rises, more consumers will be forced to cut spending in other areas. Those pressures could be particularly acute for households that rushed to buy vehicles before tariffs kicked in and are now struggling with higher monthly payments they hadn’t fully planned for.