The 2025 Auto Tariff Impact: What Dealers Need to Know Now

Original Car Dealership Guy’s podcast here.

The automotive retail landscape is about to undergo its most significant shift since the COVID-19 pandemic. With 25% tariffs on imported vehicles and auto part taking effect April 3rd, dealers across the country are preparing for a major market transformation. These changes will impact approximately half of all vehicles sold in the United States, creating ripple effects throughout the industry that will affect everyone from manufacturers to consumers.

The Car Dealership Guy recently hosted an industry roundtable featuring leading dealers, industry analysts, and automotive executives to discuss these changes. Together, they provided a comprehensive view of how these tariffs are already reshaping the automotive retail landscape. The panel included:

Understanding the Tariff Structure:

This structure creates varying levels of exposure across brands and models, with European luxury manufacturers and certain Asian imports facing the highest potential price increases.

Immediate Market Response: The Rush to Beat Tariffs

Dealers on the panel reported surprising early results in the days following the tariff announcement: "We had a robust and healthy sales weekend—plus 20-25% of where we thought we'd be. One-third of incoming sales calls were tariff-related," noted Brett Morgan, CEO of Morgan Auto Group.

This consumer urgency mirrors trends seen during previous market disruptions. The roundtable observed that import dealerships "set single-day records" immediately following the tariff announcement, while domestic brand stores saw less dramatic increases. Interestingly, the panel noted a distinct difference in consumer psychology based on brand preference. They mentioned that some domestic vehicle customers were actually "offended" by marketing messages about beating tariff-related price increases, while import store customers responded enthusiastically to the same messaging. This highlights the importance of tailoring communication strategies based on your dealership's brand mix.

Andy Wright of Vinart Dealerships compared the current situation to "Cash for Clunkers," predicting "a mad rush of demand to take advantage of a situation before dynamics change dramatically." Many dealers reported customers who had been in the consideration phase suddenly accelerating their purchase timelines from "90-120 days out" to "one to two days out."

Strategic Inventory Management in an Uncertain Market

The coming supply chain disruption is already affecting dealer inventory strategies across the country. The panel highlighted several critical shifts in approach:

• Wholesale Retention: Dealers are keeping vehicles they would typically send to auction.
• Trade-In Valuation: Books haven't caught up to market reality—trades are worth more than current book values.
• Aged Inventory: Many dealers are holding units they might have previously wholesaled, recognizing replacement costs will be higher.
• Floor Plan Management: With interest rates at 6-7% (compared to 2-3% in 2019), carrying costs for inventory are significantly higher.

"The immediate concern is the wholesale market and the replacement costs on pre-owned," explained Brett Morgan, highlighting the downstream effects beyond just new vehicle pricing. Jake Lebowitz of Raceway Auto Group emphasized the importance of being "tactical and nimble" with inventory decisions. "We immediately took as much port stock as possible," he noted, highlighting how larger groups are now positioned to "not send anything to the auction right now." This stands in contrast to pre-tariff strategies where many dealers were "leaning out and trying to take less inventory due to higher yield."

For trade-ins, the panel recommended particular focus on '"lower market day movers" – affordable, high-demand used vehicles that will likely see the most significant price appreciation in the coming months. They noted that "trades are worth more money today than what any book is telling you," suggesting dealers should adjust their appraisal strategies accordingly. The consensus was clear: replacement costs will be higher across the board, making current inventory more valuable than traditional metrics might suggest.

Manufacturer Responses Vary Widely: Who's Leading, Who's Waiting

OEM reactions have ranged from proactive partnership to cautious wait-and-see approaches, creating significant differences in how dealers can navigate the coming changes. The panel shared insights on how various manufacturers are responding:

• BMW: Communicated they're "in this together" with dealers, implementing price protection strategies through May 1st.
• Subaru: Closed sold order bank until pricing clarity emerges.
• Honda: Benefits from 95% North American manufacturing with 73% specifically made in the United States, potentially minimizing impact.
• European Luxury Brands: Most vulnerable with predominantly overseas production, especially Porsche where all vehicles are produced in Europe.
• Stellantis: Facing mixed exposure with heavy-duty Ram trucks assembled in Mexico, but potentially spreading costs across the broader portfolio.
• Hyundai/Kia: Short-term vulnerability but improving position as Georgia plant comes online with increased domestic production.

The Car Dealership Guy has created a comprehensive tariff impact tracker (available HERE) that monitors how various automakers are responding to and managing the newly implemented tariffs.

As Brian Benstock of Paragon Honda suggested, "Most manufacturers would be well advised not to pass the tariffs onto their customers, which is the dealers. They've raised prices enough over the past couple of years." The panel noted that most manufacturers are still in "data collection" mode, reaching out to dealers for input while formulating their strategies. They also observed that OEMs "don't know what to think of where this is going to go" and are "scrambling to try to get good solid information."

Andy Wright raised an interesting point about luxury brands like Porsche and Land Rover, cautioning against the assumption that their affluent customers would simply absorb price increases. "I'm not so sure I'd be quick to jump to that conclusion," he noted, suggesting that even high-end segments could face demand challenges if prices rise significantly.

Brett Morgan, who sits on the national dealer council for Stellantis, highlighted the complexity of modern supply chains: "Until the manufacturers come out and actually tell us where they're pointing, it's probably not safe to assume… [that] Jeeps are assembled in the US [so] most of the Jeep products are going to be okay."

Long-Term Industry Transformation: Beyond the Initial Shock

The panel identified several potential long-term effects that could reshape the automotive retail landscape for years to come:

1. Manufacturing Shifts and Supply Chain Reorganization

Building new US plants typically takes 3-7 years, creating a challenging transition period. As Cliff Banks of The Banks Report noted, "Chrysler is reopening the Belvidere plant, but that's not until 2027."

Brett Morgan expressed skepticism about rapid manufacturing shifts: "I think it's a little unrealistic to think you can reshape North American manufacturing in the scope of one term." However, Brian Benstock proposed an interesting workaround: manufacturers making "substantive commitment to somehow get a pass on the tariffs while they've got shovel in the ground and making that commitment to manufacturing in US."

2. Product Mix Evolution and Affordability Challenges

Manufacturers may need to reconsider their product portfolios. "I think the OEMs can take a look at their builds. During COVID, they started producing a lot of those higher-priced cars. Maybe there's a time to look at some entry-level lines," suggested Brian Benstock.

Andy Wright noted that the industry already faces "an affordability issue and a challenge," and "this situation is certainly not going to help solve that problem." He compared the potential market dynamics to "coming out of COVID back in the tail end of 2020 and for the majority of 2021," but with a crucial difference: "manufactured production levels have not slowed down; in fact, they've accelerated."

Several panelists expressed concern about the combination of high inventory levels, rising prices, and potential demand constraints. "We're going to end up with a ton of supply in a higher tariff environment [and] there's not going to be enough demand there to relieve that supply," warned Andy Wright.

3. Potential Consumer Incentives and Economic Policies

Several panelists noted the administration might implement offsetting policies to mitigate tariff impacts. Brian Benstock highlighted two potential measures: making interest on auto loans tax-deductible (similar to mortgages) and eliminating income tax for people making under $150,000 per year. He added perspective on the administration's business acumen: "We've never had an administration with this type of business-friendly acumen or knowledge or experience. To think that they're just going to drive us right off an economic cliff, I think, is maybe a little bit presumptuous."

Comprehensive Action Plan for Dealers

Based on our panel's insights, here are key strategies for dealers navigating the tariff landscape:

Comprehensive Tariff Response Strategy:

1. Strategic Inventory Management
   1. Secure pre-tariff inventory immediately (take "as much port stock as possible").
   2. Minimize auction dispositions, especially for in-demand models.
   3. Hold onto aged used inventory that might previously have been wholesaled.
   4. Adjust inventory mix based on brand-specific tariff exposure analysis.
2. Pricing and Valuation Adjustments
   1. Recognize trades are worth more than book value in the current market.
   2. Revise floor plan management strategies to account for higher interest rates (6-7%).
   3. Maintain aggressive deal acquisition while consumer demand remains elevated.
3. Customer Communication and Marketing Pivot
   1. Tailor messaging based on brand mix (import vs. domestic customers).
   2. Increase service marketing as consumers may repair rather than replace vehicles.
   3. Address changing consumer demographics, particularly affordability pressures on lower-income segments.
4. Industry Advocacy and Long-Term Positioning
   1. Engage with NADA to share dealer perspectives with manufacturers and policymakers.
   2. Monitor for potential exemptions, policy modifications, or offsetting measures.
   3. Consider franchise portfolio diversity based on which manufacturers will be most impacted.
   4. Prepare for manufacturer production shifts that will affect future inventory and pricing.

The Bottom Line: Finding Opportunity in Disruption

While tariffs present legitimate challenges to affordability and inventory management, they also create strategic opportunities for dealers who position themselves appropriately. As Jake Lebowitz of Raceway Auto Group noted, "The larger groups can kind of not send anything to the auction right now. We're making sure that we're not wholesaling anything at the moment."

The coming months will require agility, strategic inventory management, and a renewed focus on value for customers feeling the impact of higher prices across their budgets. Dealers who navigate these waters successfully may find new competitive advantages in a transformed marketplace.

As Brian Benstock succinctly put it: "I'm going to do what I try and do every day of the week – sell every car I can, all the time I can, every time I can."

The National Automobile Dealers Association (NADA) continues to engage with the administration to advocate for policies that maintain affordability and preserve jobs. Mike Stanton, NADA President, emphasized they're working to "get a better grasp on where pricing is going" while representing dealer interests in Washington.

Despite significant challenges, the panel expressed confidence in the industry's ability to adapt. As Andy Wright observed, "Dealers are resilient. As retailers, we'll figure out a way to chart a course through this challenging period."

As dealers navigate the complex tariff landscape ahead, communication with customers will be more critical than ever. Kenect's texting and video chat platform offers an ideal solution for dealerships looking to maintain transparent, efficient communication during this period of market transformation. With Kenect, your team can quickly address customer concerns about pricing changes, provide real-time updates on inventory availability, and facilitate seamless digital transactions that may become increasingly important as consumers accelerate purchase decisions. Kenect's reputation management tools can also help protect your dealership's online presence during a time when customer experience will be paramount. To learn how Kenect can support your dealership's tariff response strategy and strengthen customer relationships during this transition, visit Kenect.com or schedule a demo today.

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