Dealerships have faced vehicle pricing uncertainty for the past five years due to inventory shortages linked to the COVID-19 pandemic and subsequent supply chain impacts, including the semiconductor chip shortage. 

As the industry largely returned to a pre-pandemic normal related to production and supply chain in 2024, vehicle affordability remained an issue. In 2025, a new challenge has risen with the changes in approach to international trade under President Donald Trump. Dealerships that navigate these challenges strategically will weather the storm and emerge ahead of the competition.

What Dealers Need to Know About Tariffs

After several months of announcing new tariffs and then putting them on pause, US President Donald Trump seems to have settled on a course of action for tariffs on vehicles and vehicle parts. Beginning April 3, the president has imposed a 25% tariff on imported vehicles and parts. On May 3, a 25% tariff on automotive parts is due to come into force as well.

We expect persistent high tariffs as the new baseline for US trade relations. The US announced reciprocal tariffs on nearly every other country, with a base of 10% and adjusted for many countries. Only days after that announcement the administration put a 90-day pause on most of the country-specific reciprocal tariff. 

The 10% for countries other than Canada and Mexico (which face 25% tariffs on all goods) and 20% additional tariffs which have been levied against mainland China. However, the tariff rate that will impact the auto industry and dealers most significantly is a 25% tariff on vehicles and auto parts 

The auto sector tariffs are being imposed on Canada and Mexico as well, though vehicles which are compliant with the rules of origin in the United States-Canada-Mexico Agreement (USMCA) have some exemption. Vehicles which are not compliant will be tariffed at a 25% rate. Vehicles imported from the US and Canada will see the 25% tariff on the value of the vehicle less the value of the US parts. Other countries do not, at this time, see similar exceptions.

US light-vehicle sales will be affected as soon as mid-2025 in the US. While we are not yet providing a detailed forecast, we will see slower sales in part on the degrading of affordability that results from tariff costs starting mid-2025 going forward. Depending on automaker choices relative to tariffed vehicles, the US is likely to see weaker inventory. It is possible some automakers drop a model, even if temporarily, rather than importing into the US at the high tariff rate

Over time, we see potential for vehicles and parts manufacturing to increase in the US where capacity is available, though manufacturing in the US will be more expensive, and consumer costs for vehicles will increase. US light-vehicle sales could migrate to between 14.5 and 15 million units annually.

The tariffs will have implications for dealerships, primarily for auto and auto part imports, but there may be resources dealerships import from outside the US, and the costs of those will also increase day-to-day operations. The tariff on auto parts could also have an impact on the service department relative to replacement parts. Dealerships must have the tools in place to understand the marketplace, market to the right customers and remain nimble when desking deals.

Balancing Rising Costs with Customer Expectations

According to S&P Global Mobility, as of November 2024, the average manufacturer’s suggested retail price for a financed vehicle was $43,587. Affordability has long been a concern in the market; these concerns intensified during the COVID-19 pandemic and post-pandemic supply chain shortages through 2023. General inflation and rising interest rates further worsened the situation. 

Although inflation has subsided and federal interest rates have been cut, vehicle prices remain high, with average new vehicle monthly loan payments showing only modest reductions. S&P Global Mobility data shows that sales are rising for smaller—and therefore more affordable—vehicles, including compact, subcompact and midsize. 

Helping Customers Find Affordable Solutions

Customers are demanding lower prices on vehicles in especially challenging times, and dealerships must balance these expectations against high manufacturer suggested retail prices (MSRP). Dealerships that stay flexible and help customers find budget-friendly options will be best positioned for success. To accomplish this, dealers can: 

  • Emphasize used vehicle sales. The best dealerships help customers understand all their options when they are in-store. Customers may not have initially considered a used vehicle, so make sure they know there may be a high-quality model that fits their needs for less.
  • Promote lease options. Provide information on lease options that offer lower monthly prices. Make sure every salesperson is comfortable offering leases. The vehicles returned at the end of lease terms also help dealerships build a pipeline of certified pre-owned vehicles to bolster future used sales.
  • Understand the competition. Offering competitive prices is important, but dealerships must prioritize profitability. Knowing what the competition is offering helps dealerships set their own prices to compete without losing money. Market Scan’s Market Impact tool provides visibility into other dealerships’ offerings, prices and incentives.
  • Target ads strategically. Target ads to relevant audiences through Polk Auto Direct. This platform enables dealerships to choose the audience and platform that makes the most sense for each campaign activation, and it offers more than 1,000 segments across every make, model and fuel type. 

Turning Data into In-Store Deals

The more data you can provide and interpret for the customer, the more likely you are to close a profitable deal. mDesking enables dealerships to provide the best payment options quickly and accurately for customers while maximizing dealer profitability. The software pulls data from:

  • OEMs (vehicles, rebates, incentives, stackability and compatibility rules), 
  • Dealer terms and conditions, 
  • Lender programs and 
  • Municipality regulations (tax rates, fees and calculation methodologies).

Every year, dealerships lose millions of dollars to errors when desking a deal through misapplied incentives and missed rebates. Customers who see these errors walk away from the deal and blast the dealership for poor customer service and industry understanding. mDesking offers a transparent, streamlined process, reduces time to close, improves the customer experience and maximizes dealer profitability.

With changing tariff policies, pricing uncertainty is here to stay for the foreseeable future. It’s up to dealerships to provide certainty to hesitant customers and boost their bottom lines in the process. 

By providing consistent pricing, leveraging information about the competition and helping customers close their own deals by finding lease and finance terms that fit their budgets and lifestyles, dealerships can help customers remain confident during challenging times and, in turn, strengthen their own businesses.

To learn more about how S&P solutions deliver for dealers and accelerate sales, book a demo.