Shannon Bradley

Hi, Anna. Thanks for having me on today.

It's been quite a few years. Going back to 2021 when the pandemic caused car prices to really reach record highs, and that was because of supply chain disruptions and vehicle shortages. And that continued on till by the end of 2022, the average new car price was nearly $50,000.

Over the last few years, the car market started to recover, but average new car prices still stayed around $48,000 to $49,000. So, you know, they're still about $10,000 over what they were before COVID hit. But I think a lot of people like me were hopeful that the market was returning to normal and that cars would become more affordable again. But then that normal was just disrupted by tariffs.

A lot. I'll try to walk through this. You already mentioned the 25% tariff on imported passenger cars and light trucks, and that's already in effect. However, vehicles coming from Mexico or Canada that comply with the U.S.-Mexico-Canada trade agreement, the 25% tariff on those will only apply to content in the car that isn't U.S.-made.

Then by May 3rd, we will also have a 25% tariff on imported parts, which includes key components like engines, transmissions, and powertrain parts. Then we have other tariffs that could affect car production, like a 25% tariff that's already in effect on imported steel and aluminum.

And then I think the big one would be the duties on imports from China, which could include a lot of other materials to build cars. Originally, tariffs on China imports were doubled to 20%. Then the so-called reciprocal tariffs on global trade partners announced last week added another 34% for China.

Really, the only good news in all of this is that we also found out when the reciprocal tariffs were announced, that at least those would not be on top of all of these other tariffs for autos, auto parts, steel and aluminum.

He says, and you know, there is a level of truth that with free trade, you know, a lot of production has moved to other countries. So his belief is that by having these tariffs, it will bring vehicle manufacturing back to the U.S., whether in building new plants or bringing production back to idle plants. His reasoning is that increased production and competition in the U.S.

would eventually, I say eventually, lower car prices for consumers. But automakers have said that moving production or building new plants can take years. In the meantime, car prices are going to go up for consumers. And to that, what Trump said on NBC's Meet the Press is that, quote, he couldn't care less if automakers raise prices because people are going to start buying American-made cars.

Well, in the big three, and I think most people know that's General Motors, Ford, and Stellantis, which was formerly Chrysler. When the threat of tariffs ramped up earlier in the year, Ford's CEO was quoted as saying that tariffs could blow a hole in the U.S. auto industry.

Then in March, when the 25% tariffs were announced on all imports from Mexico and Canada, the big three, they did successfully lobby for an exemption for USMCA-compliant vehicles and eventually other products. But that still means that non-USMCA vehicles and parts are subject to both the 25% auto tariff and the 25% Canada-Mexico duty tariff.

And I think a lot of people thought he wasn't really going to do all of this. So reality is setting in. The day tariffs went into effect, the reaction from the big three... I'm not sure what word to use. It was, in a sense, kind of confusing because Ford's response was they rolled out a From America for America campaign with employee pricing for all shoppers through June 2nd.

That same day, Stellantis announced it's idling some assembly plants in Mexico and Canada and temporarily laying off about 900 U.S. employees who make components for those plants. But then they also have since joined Ford in offering employee discounts to the public.

I'm going to give you a very simplified explanation. The tariff percentage for that particular country, it's applied to what's called the declared value of the car. which usually includes the car's cost, shipping, and insurance.

So for example, if you're importing a vehicle with a declared value of $50,000 and it has a 25% tariff rate, then the tariff owed would be $12,500 and the importer of that car would pay that when the car enters the country. And then typically some or all of that cost would be passed on to the consumer buying that vehicle.

Yes, it does. I've heard similar cost increases projected from other analysts, but you have to keep in mind that these are averages. So many factors come into play that vary from model to model.

And one number that I've heard that I think kind of takes into account the different models of cars was put out by Anderson Economic Group, a consultancy firm, and they've analyzed that vehicles with the lowest and highest potential tariff impact to project the cost increases for a consumer.

And their estimate is that for the lowest tariffed American cars, the expected additional cost would be about $2,500 to $5,000. And for the highest tariffed imports, that cost could increase up to $20,000.

So vehicles on lots now shouldn't be subjected to tariffs. So if a dealer hikes the price now and says it's due to tariffs, they're taking advantage of the situation. Once dealers work through the pre-tariff supply that they have now, consumers will start to see price increases. And as of April 1st, new car inventory was at 66 market days of supply. But that doesn't account for a spike in demand.

But I would say in general, people have about two months before they start to see new car prices rise.

Yes. You know, tariffs could affect used cars and buyers in several ways. Historically, and we saw this during the pandemic, when new car supply dwindles and prices rise, people turn to used cars. Then that supply starts to drop and that pushes demand and increases those prices.

Also, there aren't as many newer model used cars available, so buyers end up having to settle for older, higher mileage used cars. And complicating matters right now is that the supply of used cars is already tight because we're already seeing fewer off-lease vehicles being returned and more people already buying used cars when they can't afford today's new car prices.

Actually, we're already seeing an increase in demand for both used and new cars. Right after the March 26th announcement about tariffs, there was a jump. And, you know, people are buying new cars that are already on lots to avoid tariffs. Then the company CarGurus noted that there was a surge in new car sales rates.

which pushed the estimated new car retail sales up nearly 30 percent month over month toward the end of March. And, you know, these sales numbers, I think, show consumers are hurrying to buy used cars as well before inventory tightens more than it already is.

Trying to stay on top of this, I've been attending a lot of auto industry calls and webinars. And there's one thing that I am consistently hearing from economists and other experts is that if you intend to buy a car in the next few years, whether it's new or used, the time to do it is now. I think some people have still been waiting for

You know, since prices shot up during the pandemic, hoping that car prices and auto loan rates would get closer to what they were five years ago. But if these tariffs do stick, the cost of buying a car is only going to go up.

Well, thanks for having me on and giving me an opportunity to try to clarify some of this because it really is hard to keep track.

or if you could easily use public transportation instead of having a car, to choose not to. So it can make more sense to prioritize savings and pay down debt over buying a car that isn't truly a necessity.

Well, many automotive experts say if repair expenses surpass 50% of your car's market value, and that's a value you can research on sites like Kelley Blue Book or Edmunds, then you should consider whether paying for continued repairs even makes sense. In this case, it might be time to redirect that money you're spending on repairs toward a new car or a used car that's in better condition.

That's especially true if the car is no longer reliable and safe.

Yes, there are always exceptions to the rule. You can't know with 100% certainty that a car will get you through another few years. But there are some instances when there could be a stronger argument for keeping one instead of replacing it. First, has the car's owner, whether you or someone else, consistently maintained it?

Has it been driven gently with mostly highway miles, which is easier on a car? Is it a make and model known for longevity? Tiffany has a 16-year-old Honda CR-V with more than 136,000 miles. But Honda CR-Vs have a reputation for going beyond 200,000 miles when well-maintained. Seven years ago, I traded in a 19-year-old Subaru with more than 250,000 miles, and someone is still driving it.

So a lot depends on the car itself.

Right. Tiffany said the CR-V is starting to need repairs. But she didn't really say how frequently or at what cost. If repairs aren't extensive, one option could be to keep driving the car and assuming it's paid off, use what she would spend on a new car payment to build that emergency fund she's working on. Preferably save it in a high-yield savings that's accessible.

Then if major repairs do pop up, she could use that money. If not, she would make a lot of progress in building the emergency fund.

What we've been telling people since early March is if they plan to get another car in the next few years, whether new or used, it was a good idea to do it before prices increased and supply dwindled. There are still pre-tariff cars available, but that window is rapidly closing and selection is becoming more limited.

Car sales did jump significantly starting in late March as car buyers rushed to beat tariffs. And according to Kelly Blue Book, April's average new car transaction price increased 2.5% over the previous month. reaching nearly $48,700. Did I hear $48,700?

And that's not all. Used car prices started to increase in April too. So both used and new are increasing by quite a bit. We're approaching a point when it could be more difficult to find a good deal. If so, it might be worth waiting, especially considering that these tariffs have been on again, off again.

And that's the thing that I think, if someone hasn't been in the market to buy a car for a while, they don't realize that these prices reached record highs during the pandemic, and they never really decreased. Right now, the price of both used and new cars are still near the record prices that they reached during the pandemic.

Yes, that is very true. And so you take into account that tariffs were not an issue during the pandemic. So for people who have continued to wait, and a lot of people did that during COVID-19, it's like, if I wait, car prices will start to go down, and they didn't. And so now they're still as high as they were, and we're talking about piling tariff costs on top of it.

So it is a lot to think about. For someone who... is not currently paying a car payment or would see their car payment double. You really have to think through whether that's something that is absolutely necessary right now. Now, you know, if it's a case that you just know you're going to have to buy another car,

or you're going to buy a car, but it's not going to be a huge financial strain, then it would probably be something that you would want to try to go ahead and do.

Traditionally, some times are better than others for getting a better deal. But of course, we don't know how tariffs will affect that. Tariffs aside, though, the best times are at the end of the model year when dealers are often discounting the previous year's model to clear it out. Manufacturers release new models at various times of the year, which is a little different than what it used to be.

There was a point in time where spring was the one time of year that new models are released all year long. So if you have your eye on a certain model, Check to see when the new version comes out. Other good times are at the end of the month, quarter, or calendar year, especially December, when dealers and salespeople have quotas to meet.

Well, Tiffany said that she has excellent credit, which is great, and would most likely be getting a used car. So for a borrower in the top credit tier, the interest rate for a 60-month used car loan is about 5.5% right now. And the average used car price is around $27,000. Back to those prices here.

Based on these numbers and not including any down payment, trade-in amount, or taxes, Tiffany's payment would be about $515 a month with a total loan cost of nearly $31,000. So looking ahead, it's impossible to predict with any accuracy what will happen to car prices and interest rates in three years.

But let's say interest rates remain around 5.5% for excellent credit and the average used car price increases $2,000. And I use that amount because it's the amount some analysts have predicted on the low end for new cars. A 48-month loan on a $29,000 car at this rate would cost about $1,300 more than financing a less expensive car for 60 months now.

But I have to stress that the second scenario is really hypothetical, and it doesn't take into account a down payment, taxes, or possibly a shorter loan term. Also, that difference would be much greater for someone without excellent credit.

So I'd really recommend that people use an auto loan calculator and input their own information, such as the amount of a down payment for a more accurate comparison.

Yes, we do. Please use the NerdWallet auto loan calculator.

It can feel like a full-time job, but the savings can be significant. The typical advice we give car buyers, tariffs or no tariffs, is to avoid buying the first car you see and don't automatically take dealership financing. You know, if you find a car that you're interested in, check online buying guides like Kelley Blue Book and Edmunds to ensure that the car is fairly priced.

And if not, negotiate if possible. And I say if possible because some online car retailers won't negotiate. If you have a vehicle to trade in, make sure you're getting a fair price for it, too. And also, just as you should shop around for cars, shop for the best luck. get pre-approved loan offers so you know the lowest rate you can qualify for.

And if you're buying at a dealership, take your lowest pre-approved loan offer to see if they can beat it. One final thing I want to mention is the possibility of leasing a car to get through the next two or three years. If someone really needs transportation and can't afford a high car payment right now, some manufacturers are offering lease deals with monthly payments of less than $300.

Most do require several thousand dollars up front and you aren't building equity or ownership in the car. But it could be a bridge during this crazy tariff time. At the end of the lease, you would turn the car back in, or you could buy and keep the car. A lease buyout loan is a possible funding option for that.

First, determine if buying a different car is a want or a need. Is your current car dangerous or regularly breaking down, leaving you and possibly your family stranded or making it impossible to get to your job? There are situations when a person simply can't delay a car purchase. Second, make a true assessment of your current car.

For about $100 or a little more, you can have a certified mechanic inspect the vehicle and provide a report of repairs that would be considered an absolute must, both now and possibly in the future. Ask for cost estimates of each to get an idea of what you could end up spending on repairs.

Yeah, nobody wants the surprise. This is broken bills. Along that same line, nobody wants, surprise, I can't make this car payment because you didn't plan ahead. The last thing I would like to say is take some time to think about what you can afford.

Use an auto loan calculator to determine the maximum amount you can spend on a car and at what interest rate and term to arrive at a monthly payment that isn't a stretch for your budget. Is finding a reliable vehicle, especially in this economy, possible in the necessary price range? Is it realistic?

Also, you know, don't forget to factor in other costs that a lot of times people don't think of when buying a car, like registration and insurance. Because, you know, when you buy a different car, it's a good possibility those will increase too.

Well, I'm usually pretty cautious. I don't buy frequently. Let's put it that way. As I mentioned, I traded in that Subaru. I had bought it new when my children were young and I was a single parent. So I got to a point where I liked not having a car payment. So I drove and drove and drove that car. And around 2018 is when I finally – and I was emotionally attached to that car.

So I finally traded it in in 2018. I did buy another Subaru that I have. But at an interesting point, that was around the time that I came to work for NerdWallet and I worked from home. So that particular car spends a lot of time sitting in my driveway, and I will more than likely drive that car for quite a while.

Well, thank you, Elizabeth.

Hey, Elizabeth. Thanks for inviting me back.

Well, the rollout of auto tariffs has been challenging to follow with so many changes along the way. So I'll try to summarize where we are at the time of this podcast recording in late May. Since early April, there has been a 25% tariff on imported vehicles, and in early May, a 25% tariff on foreign-made auto parts went into effect.

But the auto parts tariff enables carmakers to apply for a partial reimbursement over the next two years if the car is assembled in the U.S. So right now, the impact of tariffs on car prices hasn't been too significant because dealers have still been selling pre-tariff inventory. but we're starting to see prices rise.

And if everything stays as it is now, I think car buyers can expect to pay higher prices over the next few years with at least some portion of these tariffs being passed on to consumers.

I wouldn't make a car purchasing decision on tariffs alone. Even before tariff became a household word, we recommended considering your overall financial picture when deciding whether to buy a car. For example, do you already have a monthly car payment and how will adding or increasing a monthly payment fit into your budget?

New car prices are still near the record highs they reached during COVID-19. So the average monthly payment right now is around $750. When you buy a car, a goal to strive for is spending no more than 10% of your monthly take-home pay on your car payment and no more than 15% to 20% on total car costs, such as gas, insurance, and maintenance, as well as the payment.

So even if a person feels the need to buy a car now to avoid possible price increases, it really doesn't make sense if it's going to put them into a financial bind. Although that doesn't seem to be Tiffany's situation, it sounds like she manages her money well and takes time to think through financial decisions.

When it comes to buying a car, that's not always a clear-cut answer. Let's say you're using the 50-30-20 rule to budget and set priorities. That rule says a person should allocate 50% of their after-tax income to needs or essentials, 30% to wants, and 20% to savings and debt repayment.

Typically, transportation falls under essentials because most people need a vehicle to get to work to earn an income. Items in the needs category are usually prioritized over savings and wants, but there are situations when transportation could actually be a want. For example, if your current car is fine, get you where you need to be safely and reliably, but you just want a newer model.