Increased Tariffs and Prolonged Loans Strain Car Buyers and Increase Dealer Risks

In the first quarter of 2025, the auto industry is facing a potential affordability crisis due to tariffs. The increased costs of replacement parts and their scarcity are causing additional time to recondition used vehicles, a trend that could escalate as tariffs continue to impact the acquisition of used vehicles.

One of the key issues revolves around the acquisition of used vehicles due to tariffs. dealers might face significant losses if tariffs are cancelled, as they have recently bought expensive trade-ins. This predicament could lead to a surplus of used vehicles, potentially creating a ripple effect throughout the industry.

To ease affordability issues for some franchisees, manufacturers are stepping up. Ford and Stellantis, for instance, are offering employee pricing on their vehicles. This move, timed to coincide with the tariffs, could help reduce costs for consumers and potentially alleviate the pressure on dealers.

However, the auto finance market is showing signs of affordability pressure even before tariffs hit. One in five new-car buyers are taking on seven-year loans, a record high. Monthly car payments of $1,000 or more remain historically high, and average loan amounts remain above $40,000. Edmunds' data shows higher vehicle prices will likely result in higher loan amounts for consumers who need financing.

Moreover, the impact of tariffs on various manufacturers and models could bring logistical headaches for dealers. The once common incentives like 0% financing offers have all but disappeared, making the already expensive market even more challenging for consumers.

In an attempt to manage inventory, the offer for employee pricing may also be a strategic move. However, as of Q1 2025, there are no available search results indicating that any automobile manufacturers have implemented employee price increases to reduce customer costs and improve affordability.

Caldwell believes that the acquisition of used vehicles could be a larger issue due to tariffs. As more new-car buyers opt for 84-month loans to manage payments in an expensive market, the strain on the auto industry could intensify. It is crucial for the industry to navigate these challenges carefully to ensure affordability for consumers and sustainability for dealers.

Increased Tariffs and Prolonged Loans Strain Car Buyers and Increase Dealer Risks