The Used Car Squeeze: How Tariffs and Tight Supply Are Driving Up Prices in 2025
3 Predictions for the Remainder of 2025
The Used Car Squeeze: How Tariffs and Tight Supply Are Driving Up Prices in 2025
By 3 Predictions for the Remainder of 2025Automotive Risk
At first glance, the data looks contradictory.
The Consumer Price Index (CPI) showed a slight dip in used-car prices in April 2025. But if you’ve been in an auction lane, walked a lot, or tried to buy a sub-$25,000 car lately, you know the truth: used vehicle prices are quietly climbing again and fast.
We’re not in a demand boom. We’re in a supply crisis.
And it’s being fueled by the intersection of tariff threats, inventory shortages, and a broken vehicle replacement cycle that’s now entering its fifth year.
A Market Held Together by Shortages
According to Cox Automotive, used car inventory in early May sat at a 43-day supply the lowest for this time of year since 2021. But the pain isn’t evenly spread. Inventory is thinnest in the most critical segment: affordable vehicles.
Cars priced under $20K are vanishing. And in many markets, anything reliable and under $25K is bid up by a combination of:
Dealers trying to cover subprime portfolios
Rental car companies replenishing fleets
Independent lots trying to avoid expensive new-vehicle floorplans
That’s created downward pressure on supply at exactly the moment when upward pressure on pricing is rising.
What’s Fueling the Fire?
1. Lingering Pandemic Effects
We’re now five years past COVID-19’s initial shock, but the ripple effects on auto production are still playing out. Fewer new cars were sold from 2020 to 2022, which means fewer late-model trade-ins and lease returns are entering the used market in 2025.
This isn’t just anecdotal. The pipeline itself is broken.
2. Tariff Threats Are Freezing Import Pipelines
The Trump administration is considering up to 100% tariffs on Chinese EVs and has already imposed 25% tariffs on some foreign vehicle components. Uncertainty about enforcement and timing has slowed used car imports—especially from Canada and Mexico, which had become key sources of affordable, lightly used vehicles.
3. EV Residual Risk Is Real
Electric vehicles made up a larger share of trade-ins in Q1 2025 than ever before but retailers are wary. Declining resale values, uncertainty around battery degradation, and consumer hesitation on used EVs mean dealers are either passing or pricing them conservatively. That’s constraining inventory even more.
CPI Says One Thing. Dealers Say Another.
Why does the CPI show used car prices softening while dealers and auctions report rising costs?
Because CPI lags the market and focuses on transaction averages, which are being dragged down by:
Heavily discounted EVs
High-mileage off-rental sedans
Softening demand in high-end segments ($50K+)
But on the ground, in the $15K–$30K core retail band?
Prices are climbing again. And wholesale values at Manheim rose 2.1% in April alone.
What It Means for Consumers
For everyday buyers, the squeeze is real:
Subprime approvals are falling due to tighter lender risk models.
Down payments are rising, especially for used vehicles under $25K.
The monthly payment gap between new and used cars is shrinking, pushing some consumers into new leases simply because of incentive support.
If a buyer can’t secure new car financing or doesn’t qualify for EV rebates—they’re getting boxed out of the market entirely.
This isn’t a demand spike. It’s a slow-motion affordability collapse.
What It Means for Dealers
Retail gross is holding, but volume is fragile.
Margins are healthier than 2019, but most dealers would rather sell more units at slightly less gross than fewer at the top end.Appraisal discipline is key.
Desking managers are now making day-to-day judgment calls that carry $1,000+ swings in front-end profit based on rapidly changing book values and floor traffic.The right cars are harder than ever to find.
There’s still margin on 3-year-old Civics, Camrys, Rogues, and CR-Vs but only if you can source them under market and trust they’ll recondition cleanly.
What’s Next? 3 Predictions for the Remainder of 2025
Tariff headlines will drive artificial spikes in wholesale.
Expect speculators and aggressive buyers to frontload inventory ahead of potential policy changes in Q3.Private-party listings will rebound.
As affordability tightens, more consumers will bypass dealers to maximize trade equity leading to more digital arbitrage and mobile sourcing.Certified Pre-Owned will surge.
Consumers want confidence, and OEM-backed programs will become critical to moving volume on $30K+ used units that previously sold on price alone.
Final Thought
Used car pricing in 2025 isn’t being driven by booming demand.
It’s being driven by a shrinking pipeline, policy uncertainty, and a retail financing structure that’s no longer built for volatility.
Until new-car inventory returns to 2019 levels and interest rates ease the used market will remain the most unpredictable corner of the auto industry.
For smart operators, this is a time to tighten appraisals, widen sourcing strategies, and hold gross without holding dead weight.
Because one thing’s clear:
The car shortage isn’t over. It’s just shifting shapes.