The U.S. auto industry is on the brink of a significant shakeup as a 25% tariff on imported vehicles looms, according to an industry expert.

What Happened: Phil LeBeau, CNBC’s auto and airline industry expert, recently shed light on the potential consequences of a 25% tariff introduced by President Donald Trump on imported vehicles. With 7.38 million imported vehicles sold in the U.S. last year, the magnitude of the market that could be affected by such tariffs is substantial.

Trending: Inspired by Uber and Airbnb – Deloitte's fastest-growing software company is transforming 7 billion smartphones into income-generating assets – with $1,000 you can invest at just $0.26/share!

LeBeau argues that implementing a 25% tariff on all 7.38 million imported vehicles is impractical given the consistent consumer demand. He anticipates that automakers will respond in various ways, including scaling down production at overseas plants that supply the U.S. market, increasing vehicle prices, and cutting buyer incentives to balance the tariff costs.

Trump has stated that domestic plants currently operate at roughly 60% capacity and onshoring would help boost the capacity. However, LeBeau feels it cannot be an overnight process, stating that automakers will also have to assess their ability to shift production to the U.S., a complex process involving new tooling and supply chain adjustments.

The auto expert stressed that constructing a new auto plant would take at least two and a half to three and a half years, even at an expedited pace.

See Also: Maker of the $60,000 foldable home has 3 factory buildings, 600+ houses built, and big plans to solve housing — this is your last chance to become an investor for $0.80 per share.

Why It Matters: The 25% tariff on auto imports was introduced by Trump to stimulate domestic production, but it could financially burden automakers reliant on international supply chains. Elon Musk has also warned that Tesla Inc. (NASDAQ:TSLA) will face a significant impact due to these tariffs, as the company imports parts from other countries, particularly China. 

Adding another layer to the conversation, President Trump has floated the idea of making interest on auto loans tax-deductible for buyers of American-made vehicles. LeBeau acknowledged this could mitigate some consumer pain, appealing to buyers facing potential price hikes.

However, with average vehicle transaction prices nearing $49,000, a tariff-driven increase of $4,000 could push costs above $52,000-$53,000, potentially offsetting the tax benefit's impact. “It is an attractive thing to make the interest rate tax deductible but you are also gonna be looking at higher cost,” stated Phil LeBeau.

An auto industry executive warned LeBeau,” This is going to drive the auto industry, not the overall economy, strictly the auto industry into recession.”

On Wednesday, shares of major automakers like Stellantis NV (NYSE:STLA) and General Motors (NYSE:GM) fell 3.5% and 3%, respectively, following tariff discussions. Meanwhile, Tesla stock dropped 5.58% to close at $272.06.

Read Next:

• How do billionaires pay less in income tax than you? Tax deferring is their number one strategy.
• If there was a new fund backed by Jeff Bezos offering a 7-9% target yield with monthly dividends would you invest in it?

Image via Shutterstock

UNLOCKED: 5 NEW TRADES EVERY WEEK. Click now to get top trade ideas daily, plus unlimited access to cutting-edge tools and strategies to gain an edge in the markets.

Get the latest stock analysis from Benzinga?

This article Over 7 Million Vehicles Could Face The Brunt Of Trump's Auto Tariffs: 'This Could Drive...The Auto industry Into Recession' originally appeared on Benzinga.com