If looming 25 per cent tariffs on the auto industry go ahead on April 3 as previously announced by the U.S. government, experts say they’ll have a huge impact on the price of cars for Canadians.
U.S. President Donald Trump’s administration announced last week that a 25 per cent tax on all fully-built vehicles imported into the U.S. would go into effect on April 3. The 25 per cent figure would also extend to some key auto parts, including engines, transmissions and electrical components, and the White House left the door open to a levy on more auto parts down the road.
However, parts and vehicles imported under USMCA trade agreement rules are expected to remain tariff-free for the time being, as U.S. officials determine a process for applying tariffs to the components of those cars that are not American made.
Colin Mang, an assistant economics professor at McMaster University, says how the tariffs play out in the U.S. and how Canada reacts will impact how much the price of a car rises, but the dollar amount could increase anywhere from $1,000 to $8,000 Cdn.
“What we’re going to see is prices start to increase in the United States and that’s going to have spillover effects here in Canada as well, because the prices will track each other,” Mang said.
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Retaliatory tariffs by Canada would only add to the price increase, according to Mang. While there are about a dozen or so car models that are assembled in Canada that might not be as impacted by tariffs, the interconnected supply chain that sees car parts criss-cross North America many times before they end up in a vehicle will be affected.
Mang says Canada exports some 1.1 million cars to the U.S. each year, so tariffs on the domestic auto industry could mean potential job losses.
He noted that these changes would also undo the decades of work done since the inception of the 1965 Auto Pact, which sought to build a singular North American auto industry that both countries would benefit from.
Charles Bernard, lead economist with the Canadian Automobile Dealers Association, agrees that tariffs would be quickly followed by a price hike. He says the current supply of cars on the lot would cushion the price increase ever so slightly, but as soon as those cars are sold, the sticker price would go up.
“It would be a significant amount of money in a world where cars were already not cheap,” Bernard said.
Those looking to non-North American carmakers will also be out of luck, he says. Production for brands consumers might associate with Korea or Japan still often takes place in North America, so they’re likely to see the same kinds of increases, according to Bernard.
South Korean automaker Hyundai has already warned its prices could increase if the 25 per cent tariff by the U.S. goes into effect.
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Mang says that for anyone in the market for a new car, trying to buy a vehicle before tariffs and reciprocal measures come in would be a smart choice. He says interest rates are down as well, giving prospective buyers another reason to purchase sooner rather than later.
But at dealerships, the anticipation of tariffs on April 3 is already having an impact. Greg Carrasco, managing partner at Direct Nissan in Mississauga, says price panic has been keeping car shoppers away.
“There is a lot of doubt … in the air and we see it,” Carrasco said. “We’re sitting [in] a holding pattern.”
He says he and other dealers around the Greater Toronto Area are using low interest rates and offers of no payments for the first six months on used cars in an attempt to attract buyers. He says these deals should have cars flying off the lot, but instead, sales have been quite moderate.
Carrasco says it’s a scary time to be a car dealer, given there’s not much he can do except buy cars now and hope they can weather the storm. “We’re just keeping our fingers crossed that the economic gods are going to be favourable to us,” he said.
Mang agrees that uncertainty because of tariffs is making an impact. He points to consumer confidence, which dropped drastically in recent weeks. The Conference Board of Canada puts the figure at 52.6 points — down by 12 points for the month of February, which is the biggest decrease in a year and a half.
“People are really, really worried,” Mang said. “They’re worried about their jobs. They’re worried the economy is heading to a recession, and so they’re not really thinking about those big purchases like a new car.”
Bernard says there’s some indication the market might be softening. He says February sale numbers show a slight dip (which can be partially explained by an expected decline in electric vehicle sales as incentives to buy EVs in Quebec ended last month) and notes that it looks like cars are sitting on lots longer. He says that factor on top of the trade war will be bad for dealerships.
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The best thing people interested in buying a car can do is to pay a visit to their local dealership, which he says are best suited to explain where cost savings can be made with the tariff situation changing rapidly.
“It might not always be about what is on the internet or what Trump is saying,” Bernard said. “The direct connection, or the only way [you] can talk in a way with the … company building that car is through the dealership. And I think dealers will be well prepared.”
