At the risk of crying wolf, Charlie Chesbrough, senior economist for Cox Automotive, still insists auto prices are bound to increase more sharply and sales will likely fall, but it’s looking like that will occur next year and not this year.
“We were expecting tariffs to have a massive impact on the vehicle market – and we still think that they will – but it just hasn’t happened yet,” Chesbrough says in a webinar sponsored by the American International Automobile Dealers Assn.
Chesbrough admits that the public reaction so far to tariffs is, “So what?”
That’s because automakers are more willing to eat the extra cost than expected, Chesbrough says.
“We have been very surprised these manufacturers have not been passing along those tariff cost raises,” he says. In a June webinar, Chesbrough compared tariffs to the iceberg that sank the Titanic.
Besides pricing, OEMs are planning other measures to reduce their tariff liability, such as shifting production to U.S. plants, if possible, or discontinuing U.S. sales of some high-tariff models. At the same time, consumers are trying to beat expected price increases.
As a result, monthly new-vehicle sales have been strong this summer, so much so that Cox Automotive has upped its “baseline” most-likely-scenario, light-vehicle sales forecast to an even 16 million, from a prior baseline forecast of 15.7 million.
How High Will Prices Go?
Assuming the Federal Reserve cuts interest rates, starting with its Sept. 16-17 meeting, that should help sustain auto sales, too. Wall Street analysts expect a cut of 0.25% to 0.5% at the meeting.
However, prices are already high, even without the full effect of import tariffs. The average new-vehicle transaction price in August was $49,077, up 2.6% vs. August 2024, Chesbrough says.
Cox Automotive notes that some smaller body styles, such as compact and subcompact SUVs, compact cars and midsize pickups are gaining new-vehicle share, possibly because customers are downsizing to avoid higher prices.
What to Expect in 2026
It’s also possible some OEMs are reluctant to conspicuously hike prices due to tariffs because “they don’t want to be a nail sticking up that the president will hammer down, if he doesn’t like the increases,” Chesbrough says.
But ultimately, Cox Automotive expects manufacturers to run out of alternatives to price hikes.
“It’s next year, we’re thinking, that tariffs are going to have a bigger effect,” Chesbrough says. “They are eating these tariffs. We do think at some point the manufacturers are going to have to change that strategy.”
Meanwhile, sales of battery-electric vehicles and plug-in hybrid vehicles are probably going to suffer after the $7,500 federal tax break on EVs expires on Sept. 30.
Chesbrough admits the comparison could be exaggerated, but he compares the effect on EV sales with "Armageddon," or the end of the world.
“We’re seeing a tremendous amount of activity out there,” as EV and PHEV buyers try to beat the deadline, Chesbrough says. “We just think it’s going to be hitting a brick wall, once those incentives fall.”
