March 5, 2025 - In 2023, the U.S. imported $208 billion worth of cars and $87.8 billion in automotive parts and accessories, making it the world’s largest importer of vehicles and components. This comes as no surprise, as for decades, automakers have used the global supply chain to access specialized parts, control production costs, and keep prices competitive for both dealerships and consumers.

With President Trump’s proposed tariffs on imports from Canada, Mexico, and China going into effect on March 4, 2025, this is all likely to change. The new tariffs can cause higher production costs, supply chain delays, and increased vehicle prices, making it harder for dealerships to operate profitably.

This article explores three ways these tariffs could impact dealerships. This is the first article in a two-part series — stay tuned for the second part to learn how to prepare for these potential changes.

3 Effects of the Tariffs on Dealerships

Americans May Buy Fewer New Cars

There is no such thing as a 100% American vehicle,” says Ivan Drury, director of insights at Edmunds. Vehicles in the U.S. are either whole imports — like the Civic sedan or Lexus RX — or built by U.S. manufacturers using a mix of domestic and foreign parts.

Take a steering wheel, for example. Its production involves multiple international steps before reaching the finished vehicle. Electronic sensors and components arrive in the U.S. from countries like Germany for assembly. The partially assembled steering wheel is then sent to Mexico for stitching before returning to the U.S. for installation.

Similarly, Bloomberg has reported how a simple capacitor crosses U.S., Canadian, and Mexican borders multiple times before reaching its final destination in a vehicle.

With the higher import costs on components and vehicles — Mexico and Canada are the top three suppliers of vehicles to the U.S. — production will be more expensive, and manufacturers will likely pass those costs on to consumers. Imported vehicles could become up to $6,250 more expensive, potentially more for higher-cost models. Additionally, the new tariffs prompted countries such as Canada and China to implement retaliatory tariffs against the U.S. which can impact the supply chain of automotive parts that may travel through multiple countries in the production process.

This means slower sales for dealerships as more consumers are priced out of the new car market. It also means thinner margins.

“Dealerships cannot pass on all these costs to the consumer, so they will have to absorb some and cut expenses, making it difficult for them to be profitable," says Craig Todderud, Partner in the Automotive Dealerships Industry Practice at Citrin Cooperman.

More Shipment Delays, Which Could Affect Inventory

Beyond higher costs from multiple border crossings, tariffs will slow shipments due to additional customs inspections, paperwork, etc. Many automakers use just-in-time manufacturing, and minor delays can disrupt production.

S&P Global Mobility outlines three levels of automaker tariff exposure. Vehicles built in the U.S. with domestically sourced powertrains and propulsion systems will face the least impact. Those assembled in the U.S. but relying on foreign engines, like the Ford F-Series (Canada) and Mazda CX-50 (Mexico), will see moderate exposure. The highest exposure applies to vehicles built in Canada or Mexico, especially high-volume models with limited alternative sourcing, such as GM and Stellantis full-size pickups and the Toyota RAV4.

If factories struggle to secure components on time or must restructure supply chains to avoid tariffs, vehicle assembly will slow, reducing dealership inventory. “Dealers may face longer wait times for new vehicles and potential lost sales,” says Todderud.

Additionally, retaliatory tariffs from affected countries — which is likely given past responses to U.S. trade policies — could further increase costs and make sourcing more difficult for automakers, Todderud adds.

Vehicle Repairs Will be More Expensive

Repair costs will rise as automotive parts become more expensive. Many dealership repair shops import parts from Mexico, Canada, and China, especially European and Asian vehicles. Tariffs will increase the cost of these parts, forcing them to charge higher prices for repairs.

Even domestically produced parts will be affected. U.S. manufacturers often import steel and aluminum for production, and tariffs on these materials will increase manufacturing costs, making American-made components more expensive.

Rising costs could lead vehicle owners to delay or avoid necessary repairs, potentially compromising vehicle safety and reliability. It will also push insurers to raise their already high rates as insurance companies calculate premiums based on the expected cost of repairs and replacements.

So, if part prices climb, insurers must adjust their rates to cover the additional costs. This will make it even harder for dealerships to sell new or high-end vehicles. Many customers may opt for cheaper models or used cars instead, cutting into dealership profits — especially on higher-margin vehicles.

Prepare for More Dealership Consolidation

Dealership revenues are already declining, and if the tariffs take effect, many will face significant losses and struggle to stay profitable, says Todderud. While dealerships in prime locations with strong brands or efficient operations may fare better, even they will not see the record-high profits of 2021 and 2022.

As a result, more dealerships will likely consolidate with larger dealer groups — those with 30, 50, or even 100 stores — who benefit from economies of scale and can better absorb financial pressures than smaller, independent dealerships.

Some dealers are also moving toward high-growth areas, such as the Appalachian region and parts of the Southeast, where rising populations create more vehicle demand. However, those in slower-growing or declining markets may struggle to survive, forcing them to shut down or sell to a larger business. “If there are declining Midwest cities where the dealer base is approaching retirement age, they are more likely to sell to a third party that may either shut down the franchise or merge it into a larger group,” Todderud explains.

Dealerships that start preparing now will be in a stronger position to adapt and survive. Citrin Cooperman’s Automotive Dealerships Industry Practice can help you plan for these potential tariffs. Please contact your Citrin Cooperman representative for personalized guidance.