Import tariffs may soon cause the prices of new cars to rise, depending on how automakers deal with them. In turn, this might send buyers to the used market. However, the used car supplies are still tight. More demand could cause used car prices to rise again as well. Let’s look at how buyers can navigate the car market with tariffs looming.
New Tariffs Start This Week
A 25% tariff on imported vehicles and parts is set to go into effect this week. Prices are expected to rise for some new cars, and used cars might feel the pain, too. The good news is that experts don’t expect the prices for used cars to rise to the same point as in the pandemic. However, supplies are still low, so increased demand will likely cause prices to go up.
In terms of automakers raising prices, Ferrari has already confirmed some price hikes, while BMW is temporarily holding off. Some automakers like Honda have made plans to source parts in the US. Toyota is opening a huge battery plant in North Carolina to power its hybrids and EVs.
What’s likely to happen to buyers is a move away from higher-priced new cars toward lightly used cars. Unfortunately, that market has a fixed supply, and more demand will inevitably raise prices. This is more or less what happened during the pandemic when fewer new cars were made due to shutdowns and supply shortages.
Lingering Effects of Supply Constraints
One lasting effect from the pandemic specifically affects the market for used cars. During that period, fewer new cars were built than usual, which means that those cars never entered the used market. A big source of used cars is off-lease vehicles that are turned in after three or four years. However, since those cars were never made, they’re not available for the used market.
This also means that the average age of used cars is older than before, and prices are also higher than before. Buyers have a limited selection of lightly used cars, and the ones that are out there tend to command higher prices. Assuming that tariffs continue for some time, the higher prices for used cars are likely to stick around, too.
Tariff News Comes at the Worst Time
The news of tariffs comes at the worst time for the used car market. March and April are usually pretty busy at dealerships as tax refunds bring in a lot of buyers to purchase new and used vehicles. Sales started pretty strong in March, but uncertainty is creating chaos. Some buyers have flocked in early to buy, spurring tough competition for a smaller number of used cars.
The production sector is likely to feel the effects of tariffs in the second half of the year. Once it’s clear where that’s headed, there should be more reaction in the used market. Undoubtedly, some automakers will find ways to get cars made using domestic sources, but those who don’t will likely pass costs to the consumer. Once that shakes out, we’ll see what happens to the used and new markets.
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