How Tariffs Will Affect Used Car Prices

Motor Trend

a day ago

Since my last article on U.S. automotive tariffs, several manufacturers announced price increases on their vehicles for American consumers. The good news is these increases aren't as bad as we thought they would be, at least for now.
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For example, Ford is planning to raise prices on certain models (mainly those made in Mexico) by about $2,000. Other manufacturers plan price hikes around $1,200. That's far less than the 25 percent tariff levied on imported cars, trucks, and SUVs, which could have raised prices on some vehicles by more than $5,000 and beyond. Evidently, automakers have decided to absorb some of the costs of the tariffs themselves and not pass them on to consumers.
The bad news is some dealerships are experiencing shortages. Due to high sales in March while customers tried to get ahead of tariff-related price increases, many dealerships found their inventories depleted. This poses two problems.
First, for consumers, it means fewer choices. You may have your heart set on a blue Toyota RAV4, but your local dealer may only have light gray, medium gray, and dark gray in stock. And because everyone's inventories are down, they may not be able to trade with another dealership to get you a blue one. That means you'll have to settle for whatever's available or put off your purchase until the selection is better.
And second, for dealers, lower inventories mean fewer sales. Given so few Americans order their cars, there's a direct correlation between the number of vehicles a dealer has on the lot and how many it sells. If a dealership has 200 vehicles in stock, it should sell about half of those in one month. But if it only has 100 in stock, it'll only sell around 50 or so. And that affects a dealer's allocation—the number of vehicles the manufacturer sends it every month—which is based on the previous month's sales.
It also means dealers have less flexibility when it comes to prices. If a Kia dealership has 10 new Sportages, it can afford a few skinny deals—or even losing deals—on three or four of those because it can make it up on the other seven. But if it's down to two, it's going to try to make as much profit as possible on those two vehicles.
So what does the new car buyer do when they're facing higher prices and fewer choices? Simple. They turn to used cars.
There has always been an excellent case for buying pre-owned, especially certified pre-owned (CPO). They cost less than new because, well, they're used, plus the value of most new cars drops like a rock the moment they're driven off the lot. When you buy used, you don't absorb that depreciation. Another great reason to buy used is that should you purchase a CPO vehicle, in most cases you'll get a longer drivetrain warranty than you would on a new car.
But there's a catch. When demand for used cars goes up, used prices go up, too. Although tariffs aren't aimed at used cars, they will have the unintended effect of raising prices on those, as well. And parts. And service. It's a ripple effect that will have repercussions throughout the industry.
In fact, some forward-thinking dealers have already raised prices on used cars in anticipation of this expected increase in demand, even though the full impact of tariffs hasn't really hit us yet. This is predatory, but in times like these some people will always try to take advantage of others.
The situation with tariffs is still very much in flux. Things are changing every day, and it's hard to keep up, much less predict where everything will wind up. Inventories are already rebounding. Price hikes aren't as bad as we feared, at least not yet. Manufacturers are still shipping new cars to dealers. And used cars, especially certified pre-owned, will always be a good buy. So smart consumers can still get a good deal.
It will just take a little more homework on current prices and inventory, flexibility on the vehicle or options you want, and striking when the opportunity presents itself.