Let’s examine the impact of tariffs on the retail automotive sector
Tariffs are, perhaps, the most talked about economic topic of 2025.
They’ve been threatened, debated, imposed, removed, further threatened, increased and decreased multiple times all in the course of one calendar year. Economies have plummeted and recovered, industries have vanished, and others have thrived. The business community is seemingly in a state of chaos.
Tariffs are taxes imposed on imported goods. They have a significant impact on both the demand and supply side of the retail automotive industry, and will often lead to price increases, supply chain uncertainty and changes in customer buying patterns.
It is an understatement to say that today’s dealers are seriously impacted by these government-imposed actions. Some are on the brink of collapse.
Additional taxes on the supply side of an industry will result in an immediate increase in manufacturing cost. The cost of imported goods or raw materials used to make vehicles will increase quickly.
In response, OEMs will seek to shift the source of their inputs to domestic or non-tariffed countries. This shift won’t happen overnight. Expect increased lead times since alternatives are generally limited.
Ultimately, you can expect a reduction of imported vehicles, stockouts and the eventual demise of non-domestic brands in certain markets. The variety of vehicles you are accustomed to seeing on the road, will go away if tariffs continue for the long term.
Dealers’ cost to purchase inventory will increase resulting in an overall increased cash commitment to stock shelves and fill lots.
Accordingly, retailers will be forced to pass on their higher tariff related costs to consumers. That’s never a good thing.
You can expect the demand for vehicles to reduce, especially for non-essential luxury ones. Customers will switch to cheaper brands or used vehicles to meet their transportation needs. All this will snowball causing economic uncertainty and reduced overall customer spending — especially on their vehicle purchases.
To combat the above issues, dealers can do the following:
- Educate yourself of the tariff regulations and their impact on your business. If necessary, seek the advice of a trade lawyer to fully understand where exemptions can be applied;
- Work to diversify suppliers. Speak to your OEM to understand where you can shift to domestic suppliers or negotiate a support type program with them. Remember, you are strategic partners in this entrepreneurial journey;
- Build out value added sales/service packages so customers perceive value despite higher costs. While dealers can absorb some price increases, they must ultimately pass costs on their customers;
- Optimize inventory management. Make sure your lot is turning every 30-60 days and order in bulk before tariffs hit if possible; and
- Educate your customers. Be transparent about price changes and what is causing them. Build trust to differentiate your dealership through honesty.
Focus on the things you can control. Let the other things solve themselves.
This too shall pass, or, at a minimum, normalize. The dealer community will adapt and thrive. It’s only a matter of time.
