Impact of Tariffs on Auto Dealerships

The new tariffs on imported vehicles and auto parts, now in effect as of April 3, 2025, will have a significant impact on car dealerships. Several changes have already unfolded such as inventory limitations, reduced consumer demand and higher prices. In fact, over the next six to twelve months it is expected new vehicle prices will increase between $2,000 to $4,000 due to the tariffs. While some have benefitted from incentive programs (Ford’s employee pricing for all) these are only temporary solutions. Once these programs end dealerships will be forced to confront higher new vehicle prices at a time when high interest rates have made financing difficult for consumers.

While these changes are creating uncertainty for many auto dealerships there are steps which can be taken to weather the storm. This includes optimizing the inventory mix, strengthening the service and parts department, and nurturing customer relationships. The combination of these will help to create a strong position for dealers that will have to quickly diversify beyond simply sales. To help clients, prospects, and others, WhippleWood CPAs has provided a summary of the key details below.

Service Department Opportunities

The reality is the higher price for new cars creates an opportunity. Since many will hold onto current vehicles longer it means new service needs will arise as cars reach higher mileage. Prepare now by making changes in marketing the parts and service department around maintenance and repair needs. Dealers should consider proactively marketing service and repair upsells around mileage milestones. There should also be consideration given to selling extended warranty and service plan offerings as a cost-saving solution at the time of sale. Finally, make sure advertising campaigns are focused on immediate opportunities such as those with upcoming maintenance or other service needs. Through proactive targeting it is possible to capture the business before they start looking elsewhere.

Updated Inventory Strategy

Now is the time to evaluate the inventory model mix. If tariffs are impacting a certain type of car, then it is wise to clearly evaluate expected consumer demand and make orders for those models less impacted. It is important to build a diverse inventory of not only new models but also Certified Pre-Owned (CPO) to ensure there is an appropriate mix.

For those that sell used cars it is important to improve acquisition efforts before prices for these cars increase. Ensure that changes are tracked for different models in real time so high-demand vehicles can be properly priced to ensure the best margin,

Proactive Communication

Not all buyers are aware of the impact that tariffs are having on new automobile prices. Some may come to the dealership and discover costs are several thousand dollars higher than expected. Not only can this be jarring but it can quickly turn an interested buyer cold. For this reason, dealers need to be proactive in customer communications clearly and plainly explaining pricing, etc. When there are changes in availability explain what’s happening and why. However, don’t let the buyer walk out the door.  Spend time discussing current incentives, financing opportunities, or limited time pricing. Being open and direct while offering solutions is extremely important.

For those interested in electric vehicles (EV), transparency is very important. There are some pending EV tariffs which could complicate an already tricky sales environment. Be prepared to discuss the long-term cost of ownership, review available tax incentives, and be ready to present alternative models if necessary.

Contact Us

The recently announced tariffs have created significant challenges for auto dealerships, but with careful planning there are opportunities to be claimed. Now is the time to prepare your car dealership for the uncertainty that lies ahead. If you have questions about the information outlined above or need assistance with another tax or accounting issue, WhippleWood CPAs can help. For additional information call 303-989-7600 or click here to contact us. We look forward to speaking with you soon.