Strong new car supply might provide short-term buffer from tariff impact—report

New vehicle inventory levels could soften the initial impact of tariffs (now paused for some automakers), but if the measures remain in place for an extended period, higher prices and supply challenges will become unavoidable.

First things first: Inventory levels are currently robust, with a market days’ supply of 84 at the end of February. But if the timeline for the levies against Canada and Mexico extends from in the medium-term (four to 24 months), car prices could skyrocket, then stabilize at a higher price point, according to the latest CarGurus Intelligence report.

• A 25% tariff against Canada would add nearly $12,000 to the current $46,600 new vehicle price, while for Mexico, it would add nearly $10,000 to the current $39,200 new car price.  

• Combined with a 25% tariff on the EU and a 20% increase on Chinese-made vehicles, the average new car price in the U.S. could rise over 7%, from $49,800 to $52,500. 

• Even U.S.-built vehicles won’t be immune, as the 25% tariffs on steel and aluminum imports, set to take effect on March 12, could drive up production costs. Automotive parts often cross borders multiple times before final assembly, meaning the 25% auto parts tariffs in April will further add to costs.

Worth noting: While tariffs on Chinese-built vehicles have already jumped, their impact should be minimal, as they made up just 1.4% of new inventory at the end of February. The bigger concern is Canada (4%), the EU (6.8%), and Mexico (18.4%), which account for nearly 30% of the U.S. vehicle supply.

Between the lines: While tariffs directly target new cars, they won’t leave the used market untouched. If new car prices spike, more buyers will turn to used cars, increasing demand—and potentially raising prices.

For now, used inventory remains strong:

• The CarGurus Used Vehicle Demand Index rose 1.4% YoY and 4.0% MoM in February, showing steady demand.

• More choices are available, with used inventory up 4.2% YoY and 13.2% higher than February 2023.

• The average used car price is down 2.2% YoY to $27,700, though tax season could nudge prices back up.

• Refunds are helping buyers, with the average tax refund up 7.5% YoY to $3,453 through Feb. 21.

Why it matters: The current stability of the new and used car market benefits dealers and car buyers in the short term. However, if the tariffs remain in place for longer than three months, the levies could start eating away at dealer profits and lead to inventory challenges for new and used cars for many months to come.

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