New automotive tariffs are no longer just a proposal; they are a reality, leaving both dealers and consumers wondering about the impact on new car prices. This uncertainty has led to a spike in car shopping as consumers explore their options before the tariffs take effect on April 2nd. While there is immediate opportunity to capitalize on this surge of behavior, dealers also need to look ahead and take proactive steps to stay ahead of the curve. Read on to gain insight into the impact of tariffs on dealership operations, how this will impact consumer behavior, and actionable steps your dealership can employ to effectively navigate the shift from new to used car sales due to pending tariffs.
Impact of Tariffs on Dealer Operations
According to estimates from the Anderson Economic Group, the average cost of a new car could increase anywhere from $3,500 to $10,000 once the tariffs take effect1. As tariffs drive up new vehicle prices, the demand for used cars will surge increasing competition and prices for quality used vehicles in an already constrained market.
The pandemic production gap is already impacting used vehicle inventory, tightening availability and increasing prices. The off-lease cliff resulted in 2 million fewer vehicles, making it more competitive than ever to fill used inventory2. Not only that, but vehicle prices are also currently still 39% higher than pre-COVID levels3. What does all this mean for dealership operations? Dealers must focus on acquiring high-quality used vehicles through trade-ins and consumer purchases to meet this growing demand and maintain profitability by sourcing inventory from the most cost-efficient channels.
Consumer Behavior and Trade-In Necessity
Last year, the majority of car purchases included a trade-in, and this trend is expected to increase as consumers rely on trade-in value to offset higher prices4. Affordability remains a significant concern for consumers, with an increasing number of car owners finding themselves in a negative equity position on their current vehicle. In fact, 25 percent of trade-ins put toward a new vehicle during the fourth quarter had negative equity5. As a result, consumers are doing more research than ever to understand the value of their trade, with the average consumer having 2.6 cash offers at the time of sale6. Dealers need to be prepared to meet consumers where they are—both in the research process and in helping them understand their options if they are upside-down on their current loan.
Maximizing Trade-In Value: Actionable Steps for Dealers
While the impact of tariffs is significant, there are actionable steps that dealers can take to capitalize on the surge of consumers shopping with a trade-in today and solidify their used car acquisition stream for future success:
- Stock Up on Used Inventory: Prepare for the impending shift from new to used vehicles by increasing your used car inventory. Tools like Kelley Blue Book® Instant Cash Offer can help you access a steady pipeline of acquisition customers from their partner sites like Autotrader, which means you can source potential trade-ins at a much faster rate.
- Align with Trusted Solutions: Kelley Blue Book is the most trusted site for ready to transact customers. By aligning your dealership with a trusted brand, you position your dealership from a place of trust and help remove some of the friction in the trade-in process.
- Adopt Solutions with Better Cost-to-Market: With used car inventory becoming more expensive to come by, you need to embrace efficiency in your sourcing practices. Dealerships that use Kelley Blue Book® Instant Cash Offer can achieve a 3.7% lower cost-to-market than any other acquisition channel7.
- Implement Transparent Appraisal Practices: Transparency in pricing leads to higher acceptance rates and builds trust with your customers. In fact, 72% of people will take the dealer price if the dealer shows their work8.
- Leverage Your Service Lanes: Use Kelley Blue Book® Instant Cash Offer to transform your service lane into a powerful acquisition funnel. Your customers already trust your dealership with their cars, so when you present an offer, they recognize it’s from a knowledgeable and reliable source.
Conclusion
Jonathan Smoke, Chief Economist at Cox Automotive, emphasizes the broader impact of the new tariffs: “The announcement that all imported vehicles will see 25% tariffs will have a broader impact on the auto market. However, since the tariffs do not at least immediately apply to parts, it may not be as disruptive to U.S. vehicle production as we had feared.” This insight highlights the importance of strategic planning and proactive measures for dealers to navigate the changing landscape.
By leveraging Kelley Blue Book® Instant Cash Offer, building trust with customers, and maintaining transparent valuation practices, your dealership can thrive in this new landscape. Stay proactive, stock up, and ensure you meet the needs of your customers when it comes to trade-ins. The road ahead may be turbulent, but with the right approach, your dealership can steer through successfully.
Micah Tindor – Senior Director of Strategic Planning,
Kelly Blue Book® Instant Cash Offer
Micah Tindor leads the Kelley Blue Book® Instant Cash Offer business within Cox Automotive, focused on providing the best trade-in solution for Dealers, Consumers, OEMs, and Partners. Micah guides KBB ICO’s strategy and its role in Valuations, Appraisals, Pricing, and Disposal.
Micah has 15 years in the automotive industry. Prior to his current role, Micah co-founded and served as COO of vAuto’s used car reconditioning software, iRecon. He held multiple Mobility leadership positions for Goodyear Tire & Rubber Company. Micah earned a bachelor’s degree at The Ohio State University and holds an MBA in Strategy from the Fisher School of Business.
Sources
- Cox Automotive Research & Intelligence Data
- Average ICO Margin % vs non-ICO Margin % across all dealers with vAuto inventory from Oct 2023-Sept 2024.
- Cox Automotive Q4 2024 Vehicle Disposer Research