Canadian Black Book recently released an update with several scenarios that look at the impact of U.S. auto tariffs on Canada’s automotive industry.
However, they were clear to note that the tariffs will create “value instability through a sizable hole in vehicle demand and supply” that will affect the economy and the overall auto market.
Macroeconomic environment
CBB’s first scenario looks at the Canadian macroeconomic environment, in which they expect that, with the onset of tariffs, the unemployment rate will go up thanks to the increased cost of business and the reduction in staffing costs needed to maintain profitability.
“With this measurable change, the 2025 forecast from Fitch Ratings, is a peak of 7.7% in Q4 this year, and an average of 7.2% over the course of 2025,” said CBB. “This is up from our current level of 6.7% that averaged 6.3% in 2024. The effect of which will suppress market demand and inhibit our sales volume forecast for 2025, possibly creeping into 2026.”
CBB’s scenarios for the macroeconomic environment also looked at population growth and affordability concerns, and the Canadian dollar. On the latter, it noted that the threat of tariffs weakened the Canadian dollar, but the imposition of U.S. “reciprocal” tariffs weakened the U.S. dollar and helped hike up the Canadian dollar to above 71 cents U.S.
The new vehicle market
The scenarios for the new car market looks at the stockpiling of inventory of the pre-tariff priced vehicles and sees increased vehicle prices being delayed by 30-60 days. This, as consumer demand slowly ebbs.
Models with low days’ supply, like crossover hybrids and plug-in hybrids from Japanese, Korean, and European automakers, will be among the first to see the impacts on price. Markets like battery-electric vehicles and some domestic brands where days’ supply is higher will not feel the immediate effects — allowing these models to hold lower MSRPs.
“This could result in improving days’ supply as consumers search for lower new car prices,” said CBB. “Areas of opportunity like this will be scarce, but in the scenarios built around expected tariff price absorption by vehicle and brand, we can make some assumptions that are likely to decrease the impact in the retail market.”
Used vehicle market
CBB’s last scenario is the used car market, in which they said that tariff impacts have yet to be measured by market data and that their scenario is generated by a “weak economic outlook, a less financially capable public body, and an uncertain demand profile from the United States.”
General Motors, Ford, and Stellantis are considered to be in the crosshairs, from an origin of assembly perspective, and are therefore easy targets for Prime Minister Mark Carney’s reciprocal tariffs. There will be an impact on pricing for the models built within the U.S. CBB also said Canadian consumers may also steer clear from these brands due to personal and/or patriotic reasons.
“What this all drills down to, is that the used market pricing impact will vary by brand and model. But the average impact to the industry should alternatively see values decrease while new values increase,” said CBB. “This is a stark difference from the typical used market response. While consumers recognize the new car price increases, they will look for affordable alternatives within the used market, already vulnerable from reductions in post-pandemic supply.”
