The U.S. auto market is entering turbulent territory as new tariffs on vehicles and parts from Canada, Mexico and China are slated to take effect as early as April 2. While February showed no major market disruptions, March, April and beyond could be a different story, especially if tariffs linger into the medium term.
Dealers now face a rapidly evolving environment where inventory management, pricing strategy, and product mix could make or break sales performance in Q2 and beyond.
Price Hikes on Horizon: A 7% Surge in New-Car Prices
The potential impact of these tariffs is far from small. According to CarGurus’ latest market-intelligence report, the average list price for new vehicles in the U.S. could spike more than 7% — jumping from $49,800 to roughly $52,500. And that’s just the average.
Kevin Roberts, director of Economic and Market Intelligence at CarGurus, breaks it down further: “Nearly one in four new vehicles listed for sale in the U.S. originates from Canada, Mexico or China. With tariffs, a Canadian-built model could see $12,000 added to its average price tag, while Mexican imports might climb by almost $10,000.”
The ripple effect will be felt on dealership lots, especially for top-selling models that are integral to many showroom floors, he adds. Vehicles like the Toyota Tacoma, Chevrolet Equinox, Toyota RAV4, Chevrolet Silverado 1500 and Honda HR-V could be among the hardest hit. Dealers will need to brace for increased pricing pressures on these and similar models.
An Inventory Cushion – But for How Long?
The good news? Dealers have a bit of a runway with which to adjust. New car inventory levels are currently healthy, with a days’ supply of 84 – a 12% increase compared with last year. This means there’s still time to sell vehicles at pre-tariff pricing levels before sticker shock sets in with consumers.
However, the outlook depends heavily on how long these tariffs remain in place. Current inventory levels and consumer incentives could absorb a short-term hit (three months or less), Roberts says. But a medium- to long-term scenario (four to 24 months) could lead to steeper declines in new-car sales as the industry races to recalibrate production towards U.S.-based facilities. That kind of transition won’t happen overnight and could leave a gap in supply, creating more upward pricing pressure.
Used Market Poised for Bump
While new-vehicle pricing may soon give consumers pause, the used market is showing some improvement. Used retail prices have dipped slightly, down 2.2% year-over-year to an average of $27,700. That said, the decline appears to have bottomed out, and prices are now ticking upward, though not as quickly as some forecast. Those prices, combined with high financing charges and lower loan approval ratings, further stall sales.
Tax-refund season is proving to be a catalyst. Through late February, the IRS reported average tax refunds rising 7.5% year-over-year, now at $3,453. This influx of consumer cash is already driving stronger foot traffic and increased buyer urgency, especially in the used market where affordability remains attractive compared to new models that may soon become more expensive due to tariffs.
EV Trends: Tesla’s Share Shrinks as New Players Rise
Beyond pricing dynamics, there’s also a notable shift in consumer behavior within the electric-vehicle (EV) segment, reports CarGurus. While Tesla still dominates headlines and a large share of the used-EV listings, its grip on total used-EV sales is loosening. Tesla’s share of used-EV sales fell nearly 6% year-over-year, with non-Tesla EV sales soaring nearly 50% in the same period.
For dealers, this means expanding your used-EV inventory beyond the Tesla lineup could pay off in the coming months, Roberts says. Brands like Hyundai, Kia, Nissan and Ford are gaining ground among value-conscious EV shoppers looking for alternatives as more non-Tesla options come to market.
Dealer Action Plan: Adapt & Thrive
So, what’s the game plan as these macroeconomic forces hit the marketplace? Here are a few strategies to consider:
1. Accelerate New-Inventory Sales:
With robust new-vehicle supply, now is the time to move pre-tariff models. Promotions, incentives and strong F&I offerings can help consumers lock in deals before higher prices become unavoidable.
2. Lean Into the Used Market:
Given rising consumer interest – especially from tax-refund recipients – now is the time to bolster your used inventory and highlight price advantages compared to new vehicles facing tariff-driven hikes.
3. Adjust EV Strategy:
While Tesla is still a powerhouse, consumer preferences are diversifying. Stocking a broader mix of non-Tesla EVs could help capture the growing share of buyers looking for alternative EV options at competitive prices.
4. Watch Market Signals Closely:
With tariffs potentially subject to geopolitical negotiations, staying informed will be crucial. A short-lived tariff scenario may resolve quickly, but a prolonged policy could alter your mix of imports and domestics in the long run.
5. Prepare for Shifts in Consumer Sentiment:
As prices rise, expect increased sensitivity to monthly payment affordability. Prepare your teams to educate customers on alternative financing options, lease offers and certified pre-owned programs.
