A 25% Shockwave: How Auto Tariffs Could Reshape the New and Used Car Markets in 2025
A Global Chessboard: Europe, China, and the Game of Leverage
Dear Colleagues, Industry Leaders, and Fellow Market Observers,
As someone who has spent decades analyzing the economic undercurrents of the automotive industry, I want to speak candidly about what’s unfolding before us. With President Trump now back in office and already flexing executive influence, the reintroduction and expansion of tariffs—particularly the proposed 25% tariff on vehicles and parts imported from China and potentially the EU—could represent one of the most disruptive pivots we’ve seen since the global supply chain shocks of 2020.
This is not just a geopolitical move—it’s a reset. And like all resets, it will create winners, losers, and a critical middle that must pivot fast or risk falling behind.
New Car Market: The Era of Sticker Shock
The most immediate and visible impact will be felt in the new car segment. The United States has long relied on a global supply chain for EV batteries, semiconductors, steel, and other essential components. Even vehicles assembled in America often contain up to 40% of parts sourced globally. Tariffs on these imports could drive up prices on a broad swath of vehicles—not just luxury imports, but also mainstream models produced by Toyota, Volkswagen, Hyundai, and others.
Here’s what we’re likely to see:
Price escalation across the board: Expect sticker prices to increase by $1,500 to $7,500 depending on the make, model, and import composition. European luxury automakers such as BMW, Audi, and Mercedes-Benz, which rely heavily on European and Chinese components, will either raise prices or shift some production stateside to mitigate costs.
Incentive reengineering: To maintain market share, OEMs may reintroduce aggressive incentives, which could hurt margins and put financial strain on both manufacturers and dealers.
Inventory shortages: As automakers adjust sourcing strategies, we may see delays and gaps in model availability. This will pressure dealership operations and customer satisfaction.
Pre-Owned Market: A Surge in Demand, But Not in Supply
When new car prices climb, the logical fallback is used vehicles. But the pre-owned market is already tight. Lease returns are down, fleet turnover is slower, and many consumers are holding on to their vehicles longer due to high interest rates.
With tariffs pushing new car affordability out of reach for many Americans, here’s what’s likely to unfold:
Used car prices will climb again: We could see a 5% to 12% increase in used car values throughout 2025, particularly in late-model vehicles under 50,000 miles.
Profit margins will rise—briefly: For dealers with pre-owned inventory, the margins may widen temporarily. But sourcing quality used vehicles will become more competitive and expensive.
Certification matters: With higher price tags, buyers will be more risk-averse. Expect demand for Certified Pre-Owned (CPO) vehicles to rise significantly. This is also dependent on who you represent.
The Dealer Dilemma: Adapt or Get Left Behind
For dealership principals, GM’s and General Sales Managers reading this, now is the time to recalibrate:
Rethink inventory strategy: Shift your focus toward trade-in acquisition and customer loyalty programs that drive retention. Every clean trade will be worth more tomorrow than it is today.
Optimize fixed operations: As customers hold onto cars longer, service departments will become even more crucial. Price transparency, speed, and trust will be differentiators. Focus on labor rate efficiency and bundling value-packed maintenance offers.
Prepare for capital crunches: Floorplan costs may rise if inventory ages due to higher prices. Start scenario planning with your finance partners now.
A Global Chessboard: Europe, China, and the Game of Leverage
While some claim these tariffs are a strong-arm tactic to bolster domestic manufacturing, there’s an undeniable element of economic brinkmanship. Trump’s use of tariffs as a negotiating tool is well-documented, and there’s reason to believe this move is as much about pressuring allies and adversaries alike as it is about policy.
European automakers have pushed back, and there are murmurs of retaliatory tariffs. If trade tensions escalate, we may see delayed investments, export penalties, and broader supply chain fractures.
China, meanwhile, may seek to strengthen its domestic EV dominance by offloading surplus capacity into other markets—creating downward pressure on EV pricing globally, but not necessarily in the U.S. market due to restricted access.
Consumer Confidence and Economic Whiplash
All of this impacts the customer at the end of the chain. High vehicle prices, longer loan terms, and inflation-adjusted wages that haven’t kept pace—these are ingredients for reduced consumer confidence.
Luxury buyers may delay purchases or shift to domestic brands. Entry-level buyers could be priced out of the market altogether.
In summary, the auto industry is bracing for turbulence, and smart players are preparing now. These tariffs are not just policy—they are strategy. For some, it will be a growth catalyst. For others, a revenue cliff.
What’s required now is vision, agility, and the will to lead through disruption.
Stay ahead. Stay informed.