The first hints in March that United States President Donald Trump planned to impose 25 per cent tariffs on automobiles created a situation that many analysts predicted: some consumers rushed to purchase a new vehicle before the tariffs took effect. Since then, sales have continued to roll along at a brisk pace, outpacing 2024 levels — even after U.S. tariffs and Canadian counter tariffs took effect in early April — surprising many analysts, who had predicted the policies would add thousands of dollars to the cost of a vehicle and then bring a halt to sales. That hasn’t happened so far. On average, the price of a vehicle in Canada ticked up 0.9 per cent in April compared to one year earlier, according to Statistics Canada. In May, the first full month of tariffs, the average price of a vehicle ticked up 3.2 per cent. Although Statistics Canada only captures the relative price of vehicles on average, not the actual price of a vehicle, those changes are still lower than many had predicted.
The question now is whether larger price hikes lie ahead.
Matching production to demand
One of the biggest challenges tariffs pose for automakers is predicting their impact on demand and adjusting their production. Make too many cars, and an automaker finds itself with excess inventory and has to lower prices. But if an automaker produces too few vehicles, then prices could surge, which could deter some consumers from buying.“We don’t ever want to be in a position where we’re shocking the consumer and reacting,” Paul Jacobson, chief financial officer at General Motors Co., said at a conference in June. “You raise prices, you create a lull in demand and then you have to start discounting again.” He said GM anticipated the surge in demand from consumers looking to buy before the tariffs had an impact on vehicle prices.
In other words, vehicle sales may already be softening.
Tariffs implemented unevenly
The U.S. issued 25 per cent tariffs on vehicle imports on April 3. On April 9, the Canadian government issued retaliatory 25 per cent tariffs against U.S.-built vehicles, which should theoretically be causing prices to rise already.But Canada’s counter tariffs have had a negligible effect, according to an analysis released on Tuesday by DesRosiers Automotive Consultants Inc.
In the first quarter, before the counter tariffs took effect, U.S.-built vehicles accounted for 41 per cent of all new vehicle sales in Canada, but that dropped to 39 per cent in the second quarter.The Canadian counter tariffs were designed with loopholes. Five companies manufacture vehicles in Canada, and each one received a confidential “remission order,” which allows them to import an undisclosed number of vehicles from the U.S. duty-free, provided they maintain production here.A Department of Finance spokesman declined to say how many vehicles each automaker is allowed to import duty-free, and could not answer how much revenue has been raised by the duty remission scheme.But according to DesRosiers’ analysis, the number of U.S.-built vehicles sold in Canada by other manufacturers accounted for just nine per cent of new sales in the first quarter and, after the counter tariffs took effect, just seven per cent in the second quarter. “Overall, therefore, there seems to have been little change so far in vehicle sourcing,” DesRosiers said in a release.
‘Logistical gymnastics’
Vehicle prices in May only rose 3.2 per cent year over year, but that may be because consumers are only seeing the tip of the iceberg. Charles Bernard, lead economist at the Canadian Automobile Dealers Association, said that was less than what he and many of his colleagues had predicted.“I won’t complain about it,” he said. “Obviously, everyone in our industry was worried about being hit.”In part, the impact of the tariffs was mitigated because they don’t stack. Vehicles cross the border multiple times, so if a tariff was applied each time, it would quickly “spiral out of control,” he said.But both the Canadian and U.S. governments agreed that would not be wise and wrote their policies to avoid that situation. “There are reasons why we haven’t seen prices increase as much as we expected,” Bernard said. “It’s that manufacturers found ways to limit the impact.”
Some automakers stockpiled months of inventory at their dealerships so that vehicles would not be shipped across the border after the tariffs took effect. In other cases, automakers found ways to shift production between plants so that vehicles being sold in either the U.S. or Canada are built in those markets.
Automakers have also found ways to spread increased costs from tariffs across numerous different models sold throughout the world, thereby limiting the impact of the tariff on any single model. Some automakers, including Mazda Motor Corp. and Nissan Motor Co. Ltd., have stopped shipping certain models into Canada, Bernard said. “We’ve been in an environment where there’s a lot of creativity,” he said. “I call it logistical gymnastics. But the longer the situation lasts, the tougher it gets for some of these brands to find alternatives or to absorb costs. ”
Other factors beyond tariffs could affect prices
Electric-vehicle sales in Canada have been slowing. Zero-emission vehicles (ZEVs), defined broadly as battery-electric, hybrid and fuel cell vehicles, accounted for 9.7 per cent of the market in the first quarter, compared to 12.5 per cent a year ago, according to S&P Global Inc., a market data firm.
For months, auto manufacturers have railed against government policies — at the federal level as well as in provinces such as British Columbia and Quebec — that mandate that a certain percentage of their overall sales be ZEVs. Several auto industry professionals said they have pigeonholed Prime Minister Mark Carney directly during the past month, both in Ottawa and at the Calgary Stampede, to urge him to repeal the federal ZEV mandate.
The requires at least 20 per cent of the vehicles in an automaker’s 2026 model year fleet — which is what is currently being sold — be ZEVs. Current new registrations appear to be about half that amount.
As a result, some automakers say they may try to meet the target by reducing the number of internal combustion engine vehicles sold in Canada. That way, they would comply with the 20 per cent number.
“We’ve heard rumbles of companies talking to the Quebec government,” Bernard said. “Saying that with those mandates, we can’t meet the threshold, so we’re just going to send fewer cars.”
Pandemic-era challenges prepared some companies
Prime Minister Carney has set an Aug. 1 deadline to reach a trade deal with the U.S., which in theory could turn current tariffs on vehicles into a temporary measure. But one auto industry executive, who spoke on condition of anonymity, said their company is assuming that any trade deal between the U.S. and Canada will still leave some level of tariffs in place.
“I don’t think anybody expects there will be zero tariffs,” they said. “The level of aspiration on that negotiation is going to have to be managed. The U.S. president wants a baseline tariff on all jurisdictions, so we’re trying to get the best deal that we can this time.”
During the pandemic, factories in various sectors around the globe shut down in anticipation of sluggish consumer demand. Then, after consumer demand proved stronger than expected, they reopened only to face shortages of various parts that limited production.
The executive said the experience taught the auto sector about how to make its supply chain more resilient. To that end, manufacturers identified multiple sources for different parts, stockpiled certain essential inventories and found other ways to increase their agility.
Still, auto prices have substantially risen since the pandemic. Statistics Canada said the price of a new vehicle increased 22.9 per cent between June 2019 and June 2025.
AutoTrader.ca Inc., the online marketplace for new and used vehicles, said the average price of a new vehicle sold on its website in the first quarter was $65,500 compared to $40,055 in the first quarter of 2020.
Even used car prices were up 3.6 per cent in June compared to last year.
Normally, used car prices decline throughout the year, Baris Akyurek, vice-president of insights at AutoTrader.ca, said, but that hasn’t happened in 2025, which he attributes to a “pull-forward” effect in which consumers are rushing to buy vehicles before the impacts of the tariffs or other policies take hold.
Andrew King, managing partner at DesRosiers, said he thinks the impact of the tariffs will become more apparent in the second half of the year as dealerships work through inventories stockpiled before the tariffs took effect and other cost factors weigh on automakers.
The companies will continue to change their sourcing by, for example using plants outside the U.S. to bring vehicles to Canada.
“We definitely will see some price increases in the second half of the year,” he said.
Auto tariffs could still cause car prices to rise | Financial Post. (n.d.-a). https://financialpost.com/transportation/autos/auto-tariffs-could-cause-car-prices-rise