In the evolving U.S. automotive industry landscape, 2025 automotive tariffs will have a profound impact on every player throughout the supply chain and require a thoughtful and integrated approach. Tariffs on imported cars and parts (a tax paid by importers) are affecting everything from showroom floors to service bays. As consumers, automakers, dealers, and service providers adapt, understanding the full impact of these tariffs becomes increasingly vital.

Making sense of auto tariffs in 2025; a fluid situation

April 3, 2025: A 25% tariff on all passenger vehicles imported into the U.S. (~50% of market) took effect.

May 3, 2025: A 25% tariff on imported automotive parts, including engines, transmissions, and electrical components took effect.

April 29, 2025: An executive order for two years of offsets to provide time for reshoring supply chains was signed. These credits, retroactive to April 3 and valid until April 2027, offer up to 3.75% of the MSRP (offsetting the 25% tariff on imported parts up to 15% of a vehicle's value) from April 2025 to April 2026, and 2.5% of the MSRP (reducing to offset imported parts up to 10% of a vehicle's value) from May 2026 to April 2027. The order also eliminates overlapping tariffs on affected vehicles and parts, including prior levies on Canadian and Mexican goods, steel, aluminum, and most other imports. In effect, this means that, in the first year, vehicles with at least 85% domestic (U.S. or USMCA) content will not face any tariffs.

Unlike previous tariff policies, these new rules apply to all countries, though exemptions exist for certain autos and parts that meet United States-Mexico-Canada Agreement (USMCA) standards — at least until a detailed content review process is in place. Ongoing trade actions, like the establishment and subsequent 90-day pause (effective April 10) of 125% tariffs on Chinese goods, and the U.K.-U.S. trade deal (May 8) along with implementation complexity, particularly for parts, has many in the industry working to understand how these rules will be enforced. Higher prices are expected to reduce overall car sales and increase used car sales. Dealers should also anticipate more consumers shopping for financing, which can challenge F&I product attachment.

The likely effects of tariffs for OEMs, dealers, and consumers

Tariff announcements triggered a rush among consumers, who pulled forward purchases in March. According to ZeroSum’s March 2025 report, this urgency increased sales by 11%, or 153,000 units, making it one of the most robust months in recent history.

However, while April sales improved year-over-year, they were down from March and slowed in the second half of the month, suggesting that the peak of purchases may have passed. Industry analysts, including Cox Automotive and Morningstar, revised their annual forecasts downward to about 15.5 million units, a significant drop from initial estimates of 16.3 million. Once the pre-tariff inventory on dealer lots depletes — which, based on May 15 Cox Auto data, could happen within weeks for brands like Toyota (252-day supply as of March) and Honda (45-day supply) — the true impact on consumer pricing will become evident.

In April 2025, many OEMs began scaling back. Jaguar Land Rover, based in Britain, temporarily stopped exporting its luxury cars to the United States (exports resumed following a U.S.-U.K. trade deal announced May 8). Stellantis idled factories in Canada and Mexico that make Chrysler and Jeep vehicles, and Audi, the luxury division of Volkswagen, also paused exports of cars to the United States from Europe, telling dealers to sell current inventory on their lots.

From a simplified economics perspective, given an average price elasticity for new vehicles of -0.5, and assuming 50% of the tariff cost is passed to customers, average prices could rise from $48,000 to $54,000. This could result in a sales reduction of almost 6.3%, or approximately one million units.

Used vehicle market: demand surges amid rising risk

When new vehicle prices climb, the used car market usually becomes a go-to alternative for many consumers. March saw a 32% month-over-month increase in used car sales, driven largely by the substitution effect. Yet, this comes with its unique set of challenges.

Historically, used vehicles are more sensitive to price fluctuations compared to new cars. Even a 10% increase in used car prices, caused by higher parts costs, could result in demand reductions ranging from 5% to 12%.

For dealers, this shift may help drive interest in products like vehicle service contracts (VSCs) and guaranteed asset protection (GAP), as seen during the last elevated vehicle pricing cycle in 2021 to 2022, which had the strongest product penetration in recent years. As customers aim to protect their investments in used vehicles or extend the lifespan of their new purchase, greater adoption of these offerings may help to offset the financial pressures on the dealer’s other profit centers.

Repair economics and vehicle service contracts: what automotive dealers need to know¹

One of the most immediate operational impacts of these tariffs is on vehicle repair costs, as parts account for 50% of claim costs.

Approximately 50% of these parts are imported: 40% from Mexico, 10% each from Canada and China, with the remaining 40% distributed across other countries.

Pass-through to consumers is expected to be between 50% and 100% due to competitive absorption and exemption rules.

As a result of these numbers, according to Assurant analysts, mechanical repair claim costs could rise by 3% to 6%, based on a 25% tariff. This estimate doesn’t account for second-order effects, such as supply chain delays, labor cost increases, or higher rental car expenses due to part availability issues. If labor and tool costs rise due to raw material tariffs, repair facilities may also adjust prices accordingly, further compounding the impact.

Policy and economic uncertainty

The long-term effects of these tariffs depend on several volatile factors.

Tariff duration: Temporary measures may have short-term shocks, and prolonged tariffs could reshape global supply chains.

Future trade negotiations: Ongoing talks could result in revisions or rollbacks, such as the April 29 executive order and the U.K.-U.S. tariff deal announced on May 8.

Supply chain resilience: The ability of OEMs and dealers to source alternative parts and vehicles will also determine how much of the tariff costs ultimately hit the consumer.

What dealers can do to be best prepared

2025 automotive tariffs represent a potential seismic shift in how vehicles are bought, sold, and repaired in the United States. While new car sales are expected to dip sharply, the used market may remain buoyant, and service-related businesses could find new opportunities.

Navigating this new landscape will require agility, optimized operations, data-driven planning, and close monitoring of economic and policy developments. For now, industry stakeholders can consider the following actions.

1. Adjust inventory mix toward [potentially less impacted,] domestically-produced brands.

If certain brands or models are more affected by tariffs (e.g., imported from Europe or Asia), dealers can explore shifting inventory toward vehicles assembled in the U.S. or in countries with more favorable trade terms (e.g., Mexico, Canada under USMCA).

Prioritize stocking domestic nameplates or models manufactured in North America.

Work with OEMs to understand production locations, tariff exposure, and cost absorption plans.

Promote and upsell vehicles least affected by tariffs as value-oriented alternatives.

2. Optimize used car operations

While pre-owned vehicles are affected by tariffs, many consumers will pivot to used cars when new car prices rise.

Expand Certified Pre-Owned (CPO) programs, particularly late models, and promote them as alternatives to new cars.

Increase sourcing of late-model used vehicles (especially 1 to 3 years old) from auctions, trade-ins, and lease returns.

Improve reconditioning speed and quality to get used cars front-line ready faster.

3. Adjust pricing and F&I strategies thoughtfully

Tariffs may raise retail prices, so dealers must balance profitability with affordability.

Use real-time pricing tools to stay competitive while maintaining margins.

Offer creative financing options (e.g., extended terms, leasing) to help customers maintain monthly payment budgets.

Bundle F&I products to add value without over-inflating monthly costs.

4. Improve operational efficiency and fixed ops absorption

If sales volumes slow due to higher prices, a stronger fixed operations (service/parts) business can help offset overhead costs.

Increase service bay utilization and upsell maintenance packages.

Improve parts sourcing strategies to reduce reliance on components affected by tariffs.

Market service offerings to used car buyers who will likely keep cars longer due to price pressures.

5. Educate and retain customers with transparent messaging

Auto customers may not understand why prices are rising. Dealers who clearly explain the situation and guide buyers to smart alternatives can build trust.

Train your staff to discuss tariff impacts in a value-oriented, customer-friendly way.

Offer comparative sales tools (e.g., new vs. used, lease vs. finance) to help customers make informed decisions.

Emphasize long-term cost of ownership and service reliability, not just sticker price.

Monitor policy and OEM programs closely

Dealers should stay plugged in to industry updates, as automakers may offer tariff offset incentives, financing support, or supply chain changes that create new opportunities.

How Assurant Dealer Services can help with personalized F&I support

Help move your F&I numbers, generate profit and wealth, and drive customer retention with the support of an expert F&I partner that’s fully focused on you. With Assurant Dealer Services, you’re in the driver’s seat with comprehensive dealership development plans that are personalized to your exact needs — created by dealership performance experts with hands-on expertise, industry-leading insights, committed one-on-one support, highly effective products, award-winning training, and more. Get unrivaled performance with Assurant Dealer Services’ personalized F&I support.

Disclaimer: This blog post is provided for informational purposes only and doesn’t constitute legal advice. While we strive to provide accurate information, the content may not reflect the most current legal or regulatory developments and shouldn’t be relied upon as a substitute for legal or other professional advice. Readers should consult with their own legal counsel or financial advisors before taking any action based on the information provided here. We disclaim all liability for any loss or damage arising out of or in connection with the use of this blog or reliance on any information provided herein.

¹ Excludes impact of 125% tariff on Chinese imports announced on April 10, 2025.

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