🌪️ Tariff Tornado? How Do Dealers Prepare for an Incoming Storm

The latest round of tariffs announced by the Trump administration is poised to reshape the landscape for automakers, dealers, and consumers alike. With a sweeping 25% tariff on vehicles imported from Canada and Mexico, as well as additional tariffs on Chinese goods, U.S. automakers and dealers will need to brace for a significant shift in pricing, inventory management, and consumer demand.

What’s Happening?

• The U.S. is imposing a 25% tariff on all vehicles and parts imported from Canada and Mexico. This affects around 5.3M vehicles, many of which are destined for the U.S. market.

• China is also facing a new round of tariffs, including a 10% duty on various goods.

• In response, Canada has retaliated with a 25% tariff on U.S.-made vehicles, including electric vehicles (EVs), along with duties on a broad range of U.S. goods.

• Mexico is expected to follow with its own set of tariffs, further complicating North America’s tightly integrated automotive supply chain.

How Will This Impact Automakers?

• Virtually every major automaker—including Ford, GM, Stellantis, Toyota, Volkswagen, and Mazda—will see higher costs.

• Manufacturing plants in Canada and Mexico, which supply engines, transmissions, and full vehicles, will face higher production costs.

• EV manufacturers like Rivian and Tesla will also be hit, as the cost of key components sourced from Canada and Mexico rises.

• Automakers will pass these costs down the chain, resulting in higher MSRPs or reduced incentives for dealers.

What It Means for Dealers

• Reduced Incentives: As automakers grapple with increased costs, expect to see fewer rebates, special financing offers, and discounts.

• Higher Prices: A $25,000 vehicle imported from Mexico or Canada could see a $6,450 price increase—and much of that cost will be absorbed by dealerships and passed on to consumers.

• Tighter Inventory: With automakers re-evaluating their supply chains, production slowdowns or shifts in strategy could impact dealership allocations.

• Stronger Demand for Used Cars: As new car prices rise, more consumers may turn to the used car market, driving up wholesale prices and making trade-ins more valuable.

Consumer Behavior Shifts

• Longer Buying Cycles: Customers may delay purchases, leading to slower turnover and increased holding costs for dealers.

• Increased Leasing Demand: If financing a new car becomes too costly, leasing may become a more attractive option for budget-conscious buyers.

• More Interest in Domestic Models: Some consumers may opt for vehicles built in the U.S. to avoid tariff-related price hikes.

Political and Economic Considerations

The Trump administration has framed these tariffs as necessary to protect American jobs and industries, as well as curb illegal drug trafficking. While tariffs can drive domestic manufacturing investments, they also create short-term pricing volatility. Additionally, Canada and Mexico’s retaliatory actions may counteract any advantages the tariffs were meant to bring.

Next Steps for Dealers

• Evaluate Pricing Strategies: Dealers should review and adjust pricing to remain competitive as MSRPs rise.

• Focus on Used Inventory: Strengthen sourcing strategies for certified pre-owned and high-demand used vehicles.

• Stay Updated on Incentives: Automakers may introduce alternative incentives to offset higher sticker prices.

• Communicate with Customers: Transparency about price changes and financing options will be key to maintaining trust and driving sales.

Final Thoughts

These tariffs will undoubtedly shake up the auto industry, but dealers who adapt quickly can turn challenges into opportunities. By staying informed, adjusting strategies, and leveraging shifts in consumer demand, dealerships can navigate these changes effectively while keeping their businesses strong.

Stay tuned for more updates as the situation evolves.

Sources:

• The Verge: “Automakers brace for ‘massive’ impact of Trump’s tariffs”

• InsideEVs:“Canada Hits U.S.-Made EVs With 25% Payback Tariffs”

• REUTERS: “Asia automakers lead the decline as region takes a beating from Trump tariffs”

• REUTERS: “Auto giants, nuclear firms bear the brunt as Trump tariffs roil markets”

• REUTERS: “European carmaker shares fall after Trump imposes tariffs”

• REUTERS: “Trump says Americans could feel 'pain' in trade war with Mexico, Canada, China”

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