When U.S. President-elect Donald Trump launched the threat of a 25 per cent tariff on all products entering the U.S. from both Canada and Mexico, the automotive industry took notice.

While a lot of the focus has been on the negative impact on new vehicles and the auto parts industry, the damage to the used car supply could be considerable, according to a LinkedIn article from Brian Murphy, Senior Consultant with Clarify Group Inc. and the former Managing Director of Kelly Blue Book in Canada and Vice President Research & Analytics at Canadian Black Book.

The tariff concerns were sparked after Trump wrote on his Truth Social platform that the tariff “will remain in effect until such time as Drugs, in particular Fentanyl, and all Illegal Aliens stop this Invasion of our Country!” He has maintained that position in several media interviews since then.

Based on the Ivey Business School, industries in Canada that are most reliant on cross-border supply chains would experience the most severe impact. “The automotive sector especially, with 20 per cent of its inputs sourced across borders, faces significant cost increases and disruptions,” they said in an article posted on their website.

They also said companies would need to act fast to protect their operations, starting with a supply chain assessment that would help businesses pinpoint risks and prepare for potential disruptions.

Brian Murphy, Senior Consultant with Clarify Group Inc. and the former Senior Director of Kelly Blue Book & Data Solutions (Canada & Brazil) and Vice President Research & Analytics at Canadian Black Book, argued in a LinkedIn article that the impact a 25 per cent tariff could be devastating for the used car market — particularly in Canada.

His article was titled: “Happy New Year: unhappy used car price crash?”

“For those of you who don’t know (and I know many of you do!) about 200,000 to 300,000 used cars are exported every year from Canada to the U.S. This seems like a shockingly large number, and it is,” he wrote, noting that “the shipping of so many used cars out of this market has a major impact on supply, demand and prices here in Canada and the U.S.”

“If a 25 per cent tax is imposed, it would halt the export of used cars from Canada to the U.S. almost instantly,” said Murphy. “Once a 25 per cent tax is applied to a used vehicle, plus a few thousand dollars in shipping and handling fees, to export a car to the U.S. from Canada would likely not be a profitable enterprise.”

Murphy said used vehicle prices at wholesale would plummet, and that vehicles at lease return time would be worth much less.

While a 25 per cent tariff of the nature Trump has declared would likely violate USMCA provisions, the administration has been shown in the past to act on some threats — and use others simply as leverage.

Dealers might be wise to consider their exposure on their used car inventory in the coming weeks, and to keep tabs on whether the tariffs will be imposed.

The Canadian Automobile Dealers Association (CADA) wrote about the auto industry’s response to tariffs and the association’s involvement in an article in its newsletter CADA Newsline this week.

Phillips, T., Lefko, P., Lefko, P., dealer, C. auto, & Phillips, T. (2024, December 11). A 25% U.S. tariff would severely impact used cars. Canadian Auto Dealer. https://canadianautodealer.ca/2024/12/a-25-u-s-tariff-would-severely-impact-used-cars/

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As the gap between new and used car prices widens, coupled with high-interest rates, buyers face a reality check.

A plurality of prospective car buyers say they prefer a new car when auto shopping, but new research shows they’re often unprepared to hand over the money to get one.

The price gap between new and used cars has reached an unprecedented level, with a $20,000 difference in average transaction prices, the largest on record, according to Edmunds. While new car prices continue to climb, the average price of a used car has declined 6.2% year over year to just over $27,000—roughly $20,000 less than the price of a new car, on average.

Despite the inflated prices in the new car market, nearly 50% of prospective buyers say they’re still more interested in buying new cars over used ones. Just over a quarter of buyers said they were more interested in a used vehicle, while less than a quarter of buyers said it “depends on the price/deal.”

New-car buyer expectations at odds with reality

Many shoppers would prefer to get behind the wheel of a new car, but that preference often butts heads with reality when faced with real-world price tags. The average price of a new vehicle hit $47,542 in Q3 2024, a price point that puts new cars out of reach for many.

This trend is particularly striking given that 14% of new-car shoppers say they want to spend $20,000 or less—a price that’s virtually nonexistent in the current new-car market, according to Edmunds. Just under half of new-car buyers surveyed said they want to spend $35,000 or less, which is more realistic but still significantly below the average new car price, meaning that options will be limited.

Modest discounts aren’t enough to lure buyers

Though discounts on new cars are beginning to return, they’re modest at best. In Q3, the average discount on a new car rose to $1,744, doubling last year’s $828 average. However, these savings barely make a dent when considering the overall high prices and interest rates. Shoppers who remember deeper incentives and zero-percent financing from pre-pandemic times may be in for a disappointment, especially as dealers face longer turnover times and are reluctant to discount further.

With new vehicles now spending an average of 57 days on dealer lots—the longest since 2021—dealers are seeing clear signs that new car prices may have surpassed what many buyers are willing or able to pay.

Used cars aren’t the deal they used to be

With the gap between new and used car prices wider than ever, over half of buyers surveyed said they’re interested in or would consider a used car depending on the deal. But even with declining prices, used cars don’t offer the same value they did before the pandemic.

Since 2019, monthly payments, down payments, and interest rates on used vehicles have all increased sharply. A significant portion of used-car buyers still expect monthly payments in the $200-$300 range, a target that today’s higher financing rates make increasingly unrealistic. For used cars, the average monthly payment now sits at $548, a sharp rise from $413 in 2019, and far above what most budget-conscious shoppers are prepared to pay.

Buyers can still find used cars in the $200-$300 monthly payment bracket, but they’re now significantly older and higher mileage compared to those purchased at similar prices just a few years ago.

Less car for more money

In 2019, a used car with a $200-300 monthly payment would require a down payment of about $2,800. For your money, you’d get a car that’s about four and a half years old with 55,000 miles. In 2024, cars in that monthly payment bracket not only require much larger down payments—just over $6,000—but they are also six and a half years old with 71,000 miles, on average.

One factor driving that change is used car loan interest rates. For our hypothetical 2024 used car, you’d be paying 10.5% interest on the car, about 2.5% higher than for a similarly priced car in 2019. This combination of inflated prices and higher interest rates has made it tougher for consumers to find desirable vehicles with affordable monthly payments even in the used market.

Final thoughts

Today’s car buyers face an uphill battle in their search for affordability. While the desire for a new car remains strong among many, the harsh reality of inflated prices and financing costs is pushing buyers toward used options. But in 2024, even used cars don’t offer the value that they used to, with buyers having to hand over more money for worse cars compared to before the pandemic.