In a significant policy shift, President Donald Trump has announced new tariffs of 25% on cars and car parts imported into the United States, scheduled to take effect on April 2, 2025.
These tariffs on cars represent a pivotal change in the economic landscape of the auto industry, potentially reshaping market dynamics and affecting stakeholders across the sector. As the auto industry braces for impact, this new round of tariffs raises concerns over increased vehicle prices and their subsequent effects on affordability and consumer choice.
Impact on Auto Dealers
Auto dealers find themselves at the frontline of this tariff-induced upheaval, grappling with anticipated higher costs in the manufacturing process. With vehicle prices expected to soar — by as much as $10,000 for luxury models and up to $3,000 for lower-cost vehicles — dealers are anxious about the repercussions on consumer affordability.
Already wary of affordability issues in today’s economic climate, dealers are now facing another layer of financial instability that could hinder sales and inventory management.
Effect on Used Car Dealers
The ripple effects of the new tariffs are likely to extend into the used car market, as rising new car prices drive consumers to seek alternatives. However, the landscape in the used car market remains challenging due to limited availability, particularly of near-new models, stemming from the new vehicle shortage and reduced lease vehicles post-COVID-19.
As tariffs add pressure to the new vehicle market, used car prices are expected to rise, compelling dealers to exercise caution and strategic thinking in purchasing used vehicles and evaluating trade-ins.
Vehicle Repair Side Effects
Beyond sales, the tariffs also threaten to inflate vehicle repair costs, affecting car owners and dealers alike. The increased costs of new parts could lead to higher reconditioning expenses for dealers and potentially elevate insurance premiums, as repair costs for accidents involving new parts rise.
This scenario presents further challenges for the auto industry, impacting consumer sentiment and dealer profit margins.
Challenges Facing Auto Dealers Ahead
As the auto industry navigates these turbulent waters, consumers are likely to bear the brunt of reduced choice and escalating prices. Auto dealers, meanwhile, face the daunting task of managing inventory amidst declining consumer sentiment, which could result in lower unit sales, diminished profit margins and increased costs of carrying inventory.
As the April 2025 deadline approaches, the industry must brace itself for a period of adjustment and strategic recalibration in response to these sweeping tariff changes.
How We Can Help
As the auto industry confronts the uncertainties posed by new vehicle tariffs, Cherry Bekaert can assist auto dealer clients in navigating these complex challenges. Our Auto Dealer Services team is dedicated to evaluating liquidity positions, identifying financial options and implementing business plans that drive improvement throughout the organization. With a proven track record of representing automotive dealers of diverse sizes and operational complexities, we understand how to add value to businesses in this fast-paced industry.
Our comprehensive range of services includes strategic tax planning and compliance, assurance services such as cash flow analysis and inventory valuation, and advisory services, covering technology, risk management and financial planning. Cherry Bekaert’s trusted advisors are equipped to provide innovative, cost-saving ideas and resources, enabling auto dealers to make informed decisions.
Whether it's minimizing state and local tax burdens, conducting cost segregation studies or offering strategic growth advice, we are committed to helping our clients move forward confidently amidst tariff-induced market shifts. By leveraging our depth of knowledge, we aim to empower auto dealers to seize opportunities and mitigate risks, maintaining their sustained success in the face of industry challenges.
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