There are many uncertainties about how United States President Donald Trump’s tariffs will affect the auto industry, but sector insiders say one thing is all but certain: the price to buy a vehicle is about to go up and may already be rising.

“The first economic effect we’ll see, and it’s a major one, is on car prices,” Charles Bernard, lead economist at the Canadian Automobile Dealers Association, said. “And our car prices aren’t necessarily cheap right now at the moment, so it won’t help something that was already a problem.”

It all comes as a gut punch to some who believed the auto industry was just returning to a healthy state.

The auto sector had been hit hard by inflation, with the average price of a new car in Canada rising 43.2 per cent between 2019 and 2025, and used car prices rose 39.5 per cent during the same timeframe, according to data from AutoTrader.com Inc., the vehicle marketplace. But in 2024, the average used car price declined by 12.1 per cent.

Exactly how much car prices could rise again thanks to the latest tariffs is difficult to predict. J.D. Power earlier this month estimated that 25 per cent U.S. tariffs and counter-tariffs could add $6,000 to the price of a new vehicle, which is a 9.2 per cent increase given that the average new vehicle in Canada costs $64,600, according to Autotrader.

But nearly everyone agrees that estimate is only a rough guess and there are many factors at play.

Just two months into office, the Trump administration has unleashed a barrage of tariffs, threatened tariffs and reprieves that even economists are having a hard time keeping track of, let alone making sense of their combined impacts on the auto sector.

At the beginning of March, the U.S. enacted 25 per cent tariffs on all Canadian goods that are not compliant with the Canada-United-States-Mexico Agreement (CUSMA), which could affect some auto parts manufactured here, though most vehicles are believed to be compliant. It also levied 25 per cent tariffs on Canadian steel and aluminum, both of which are large inputs for vehicles.

Trump has further signalled that he plans to enact 25 per cent tariffs on April 2 on autos and additional 25 per cent “reciprocal“ tariffs on a sweeping set of goods, which would in effect match any costs that U.S. exporters face, such as goods and services taxes, that are not generally considered as trade duties.

Analysts at S&P Global Mobility are predicting a 50 per cent probability of there being “an extended disruption” — one that lasts 16 weeks to 20 weeks — when vehicles that are more exposed to tariffs will slow or cease production.

“Consumers will face rising costs on all goods, reducing available funds and willingness and ability for purchasing durable goods,” Stephanie Brinley, associate director of autoIntelligence at S&P, said in a note on March 12. “We expect product development delays to have lasting effects into future years.”

She said one “more dire scenario,” in which tariffs on vehicles produced in Canada and Mexico are integrated into the long-term trade structure on a permanent basis, has a 20 per cent probability of happening. Although this could increase U.S. manufacturing, she said it would increase costs and likely lead to a decline in vehicle sales.

Brinley gives a 30 per cent probability for a “quick resolution” and tariffs disappearing in a month or less, but this would still lead to lower production due to supply chain issues and border gridlock.

Eventually, many economists say the tariffs could lead to inflation or a recession, which will affect interest rates and consumer behaviour, including whether to purchase a vehicle.

“With these tariffs in place, we would expect to see vehicle sales in these countries contract substantially,” Andrew Foran, an economist at TD Economics, said in a Jan. 28 note.

Even 10 per cent tariffs could lead to a sales decline of light vehicles in Canada of around eight per cent, while a 25 per cent tariff could push the decline to around 13 per cent, he said.

Since tariffs raise prices for consumers and businesses, people will have less money to spend and economic growth will weaken, Foran said. That leads to higher unemployment and stagflation, which is weak growth and high inflation combined.

“We were so close to normalcy,” Baris Akyurek, vice-president of insights and intelligence at AutoTrader, said. “Everything was coming down, the demand was there, the supply was there, we were really close to normalcy and then this stuff happened.”

He said used car prices are an important indicator because it’s the marketplace that absorbs demand when new car prices rise.

Typically, he said, used car prices start the year high and then decline, but used car prices have risen 0.4 per cent so far in March.

“It’s not by much yet, and it’s only 16 days of data, so this is not conclusive, but prices had been coming down,” Akyurek said.

On the other hand, the average price of a new vehicle declined by 0.2 per cent.

But he said there are other troubling signs in the marketplace. Sellers have stopped dropping their prices as often this year, with a 22 per cent year-over-year decline in the number of price drops amongst all vehicles listed on AutoTrader.

Some dealerships in Canada are building up inventory now, which will provide a cushion against price increases for a period of time since those vehicles will not be affected by tariffs if they are imported before they go into effect.

“It’s pretty clear what’s going on,” said Akyruek, who added that rises in price at this point “are inevitable.”

Auto prices already rising as tariffs loom | financial post. (n.d.). https://financialpost.com/transportation/autos/auto-prices-already-rising-tariffs-loom

Thanks to the trade war, your next vehicle could be used. 

Even then, the savings might not be what you expect. 

As indiscriminate U.S. tariffs threaten to shut down the North American auto industry, manufacturers of new cars will be the first to be hit. That’s expected to drive more buyers to the used-car market, complicating what many already find to be a fraught spending decision. 

New car economics: The Michigan consultancy Anderson Economic Group estimated that new car prices could go up by US$12,000 if the U.S. implements 25 per cent tariffs on Canada and Mexico and an additional 10 per cent on China. That’s because many car parts would be tariffed multiple times before they ended up in assembled vehicles. What’s more, some suppliers and car plants may slow or halt production because they’re unable to pay the costs, reducing the supply of vehicles over time. 

“No matter how much the tariff will be, it is not possible to move production back to the U.S. overnight. So most likely, either production will have to shut down, or they have to continue under tariffs and be hit,” said Tu Nguyen, an economist at the tax and consulting firm RSM Canada. 

Either way, prices of new cars go up.

Used car economics: As of this writing, it wasn’t clear whether used cars would fall under the U.S. tariffs. But a recent analysis by the Canadian Black Book found that, either way, Canadians will gravitate to second-hand vehicles.

If used cars are tariffed when crossing the border, the price gap between new and second-hand ones will widen. That’s because fewer U.S. buyers would be bidding at Canadian car auctions due to the additional expense of bringing cars across the border. Canadians would have more used vehicles to choose from. 

That’s a happy scenario for buyers, but there are others in the Black Book analysis where used car prices rise. In one, Canadians react to higher new-vehicle prices by migrating en masse to the pre-owned market, and demand eclipses supply. In another, the tariffs don’t apply to second-hand autos, prompting American bidders to snap up used Canadian vehicles at favourable exchange rates, driving up prices at auctions. 

“Used cars—[that] is the question mark in terms of what will happen,” said Jesus Ballesteros, who advises manufacturers and other businesses as a partner at BDO Canada. Regardless, dealers are turning to second-hand cars as a revenue stream. To the extent that dealers can prepare at all, Ballesteros said, having “a good used car operation” will dampen the impact of tariffs. 

Chaos at the dealership: Tariffs aren’t yet in effect, but dealers are already planning for the ensuing chaos. For starters, they’re on high alert for fraud. Insurance company Aviva expects a tighter U.S.-Canadian border to increase the probability that Canadians accidentally buy stolen vehicles, because thieves will flip them domestically rather than risk trying to get them into the U.S.. Among the other unknowns: how a trade war will affect interest rates; the costs of repairs using tariffed parts; and the economic fluctuations tariffs may cause in local markets, noted Charles Bernard, lead economist at the Canadian Automobile Dealers Association. 

Sean Mactavish, CEO of Autozen, a Vancouver-based tech company that helps car owners sell to dealerships, is among those expecting a surge in demand for second-hand vehicles. How the prices shake out depends on how long people delay purchases amid economic uncertainty, he noted. He’d like to see governments quickly lift interprovincial trade barriers for car sales to make it easier for dealers to find the vehicles and workers they need within Canada. 

In the meantime, Mactavish is navigating the same unknowns as everyone. How great will the impacts be? Which market segments will get hit hardest? “I’ve talked to other leaders and dealerships, and we’re all asking the same questions,” he said, “trying to get answers.”  

Balakrishnan, A. (2025, March 13). Why even used cars could get more expensive in a trade war. The Logic. https://thelogic.co/news/shift/used-cars-auto-tariff-trade-war/

There could be trouble brewing in the Canadian wholesale used-vehicle market.

Canadian Black Book’s Used Vehicle Retention Index rose 0.9 points to 138.9 in February. It wasn’t the eye-opening 2.3-point jump of the previous month, and was still down 3.3% year-over-year, but CBB senior manager and head of Canadian vehicle valuations David Robins said it’s part of an upward trend that will continue to be fueled by the U.S. government’s 25% tariff on Canadian imports and Canada’s reprisal.

“Wholesale vehicles values in Canada are under upward price pressure in February with volumes decreasing and demand staying strong,” Robins said. “As U.S. tariffs have been implemented on March 4 and a Canadian retaliatory response is being phased in over the following 21 days, we expect increased instability while markets adjust to these major changes.”

President Trump’s announcement Wednesday of a one-month tariff exemption for autos complicates that assessment as the market reacts to the new circumstances. Trump’s “reciprocal tariffs” are scheduled to take effect April 2.

Until January’s sudden rise, the CBB index had been steady through the second half of 2024, gaining or losing less than 0.6 points during any month in that period. Prior to that, the index spent 27 months dropping as the market corrected from a COVID-induced peak of 165 in March 2022.

The index is calculated using CBB’s published wholesale average value on 2-6-year-old used vehicles as a percentage of original typically equipped MSRP and weighted based on registration volume and adjusted for seasonality, vehicle age, mileage and condition.

Big week for auction sales

CBB’s weekly Market Insights report said the biggest change in the wholesale landscape for the week ending March 1 showed up in the auctions, where sale rates rose to an average of 54.3%, up five percentage points from the previous week, with a range from 52.6% to 76.1%.

Overall values fell 0.19% for the week, slightly less than week before, with three segments gaining — compact vans (up 0.02%, $3), full-size pickups (0.29%, $96) and sub-compact cars (0.25%. $29) — gaining and sporty cars breaking even.

On the downside, six segments lost more than $100 in value, topped by full-size crossover/SUVs ($402, 0.66%) and prestige luxury cars ($272, 0.46%).

Used retail prices held steady week over week, with the 14-day moving average listing price remaining at $34,000.

CBB analysts noted a record 18.9% market share for zero-emission vehicles in the fourth quarter of 2024 as consumers raced to buy in front of the pending end of ZEV decrease/end of various rebate programs from federal and provincial governments, leading to a record 15.4% share for the year. Both of those numbers were up 40% year-over-year.

Not surprisingly, ZEV market share fell in January to 13.3%, which was still a 2.9% increase from January 2024.

The U.S. market was a mirror of the previous week with values down 0.19% overall, cars down 0.25% and trucks dropping 0.16%. Analysts said early indications of rising prices in select segments could be the harbinger of a spring market, as the overall decline remained less severe than the typical seasonal declines.

CBB’s 2025 forecast tells industry ability to pivot is key in a “tumultuous” year. Auto Remarketing. (n.d.). https://www.autoremarketing.com/arcanada/cbbs-2025-forecast-tells-industry-ability-to-pivot-is-key-in-a-tumultuous-year/