Bliss Bednar’s 2023 Volkswagen Atlas was running just fine. Sure, it wasn’t the fanciest car she’d ever owned, but with home renovations to plan and rising construction costs already threatening her remodeling budget, the retired teacher in central Texas planned to stick with the three-row SUV for the foreseeable future.
Then President Donald Trump outlined 25 per cent tariffs on auto imports, and she joined the millions of Americans racing to dealerships to snap up new models before the higher levies drive up prices by thousands of dollars.
“I was a little reluctant, because there was nothing wrong with the car I had,” says Bednar, 58. After offloading the VW, she purchased a 2025 BMW X3 for about $65,000 with a $20,000 down payment, leaving her with a $500 monthly bill. It’s affordable for now, but she worries she’ll feel squeezed if everyday prices continue to rise. “I was afraid of tariffs, and I was afraid prices were going to skyrocket. Then I was like, ‘Maybe I jumped on this too soon,’ ” she says.
Because of Trump’s tariffs, which went into effect on April 3 for finished cars and trucks but will take time to trickle down to the models on dealers’ lots, financial planners across the U.S. say they’ve received an onslaught of inquiries from clients trying to purchase new vehicles. The president’s directives signed last week are meant to soften the car-tariff blow, in part by preventing multiple levies from piling on top of each other, but those buyers who raced to lock down vehicles are still on the hook for years of payments. For financially stable buyers, getting out ahead of price hikes can be a “prudent decision,” says Michael Girard, senior director for asset-backed securities in North America for Fitch Ratings Inc. But the high cost of new cars combined with the urgency to buy before tariffs hit could be a recipe for remorse should the economy slip into recession.
Automakers and their dealers—which have goaded would-be buyers with employee-pricing-for-everyone deals and appeals to buy before pre-tariff inventory runs out sometime this summer—have indisputably seen a FOMO-driven boom. In March, Honda Motor Co. recorded a 13 per cent jump in U.S. sales, while Nissan Motor Co. said volumes rose 10 per cent. The U.S. annual selling rate—which extrapolates an entire year’s sales from a monthly pace—came in at 17.8 million in March and 17.3 million in April. Last year about 16 million new cars were purchased in America.
But this frothy auto market will likely leave some buyers with a financial hangover, especially since there already have been signs that more car buyers are missing payments. Delinquencies on auto loans have been rising, and car repossessions spiked to 2.7 million last year, almost double the rate of repos in 2021, according to the Recovery Database Network. Despite an average new-car loan rate of more than 9 per cent, banks this spring began extending more loans to subprime buyers, according to researcher Cox Automotive. At the same time, prices remain stubbornly high, with average monthly payments for a new vehicle costing $734 in March, up about 27 per cent since early 2020, according to automotive researcher Edmunds.com Inc.
To cope, new-car buyers have been extending the length of their loans, with one in five now taking out a seven-year note, Edmunds says. That’s likely to leave more owners upside down on their loans. One-quarter of trade-ins now are worth less than what’s owed on the loan, a situation known as negative equity. “You don’t want to be stuck with a seven- or eight-year loan that you absolutely hate and can’t afford in a couple of years,” says Joseph Yoon, a market analyst with Edmunds. “It’s going to be an expensive and painful mistake.”
Brittany Wolff, a financial adviser in Greenville, South Carolina, is telling clients that if they weren’t already planning on buying a new car in the next year, there’s no reason to buy one now. She recommends that households spend no more than 10 per cent of take-home pay on a car payment. It’s also worth remembering that cars are almost always a depreciating asset; unlike an investment in a house or a portfolio of stocks, the value of a car usually goes down over time. Shane Sideris, managing partner at Synchronous Wealth Advisors in Santa Barbara, California, has been reminding clients that even if they technically can pay off their car bill each month, that could come at the expense of retirement or savings goals or the paying down of other higher-interest debt. Still, he says, his clients are responding to car dealers’ fear tactics. Buyers are being encouraged to “get it before it gets worse,” says Jonathan Smoke, Cox’s chief economist.
That’s the mentality that drove Jackie Erker to the dealership. The 26-year-old had been driving a 2007 Jeep Patriot for years that was fully paid off. But when Erker, who lives outside Chicago and works as a freelance graphic designer, began noticing higher prices on parts to repair her Jeep, she decided that buying something newer would be better in the long run. So in early April, she purchased a slightly used 2023 Hyundai Palisade for about $40,000. Because of still-high interest payments, she now has a $525 monthly bill.
“We’ve had to make cuts in other areas,” she says. She and her partner have started buying cheaper brands and splitting large Costco hauls with family to save money. “A new car wasn’t in the cards.”
Plenty of new-car buyers will be fine, especially those who’d already budgeted for a big purchase. In the worst-case scenario, though, some buyers who rushed in risk falling behind on the payments. That can both tank their credit score and potentially leave them without necessary transportation. To be sure, delinquencies don’t always lead to defaults, since borrowers will often prioritize auto loans over other forms of debt to make sure that they don’t lose their vehicles through a repossession.
But Vaughn Clemmons, president of the American Recovery Association, a trade group, says his industry is preparing for a big year of repo work anyway. “Repossessions are definitely on a trajectory up,” he says, citing an increased number of Americans already delinquent on their loans. “The cost to survive is skyrocketing, and the consumer is going to feel it.”
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