Potential price hikes and growing demand are likely to dominate 2025.

With all the uncertainties currently going on regarding tariffs and cross border trade between Canada, the U.S. and Mexico, the automotive industry is facing a host of headwinds, many of them unpredictable. While one of the most direct issues concerns the manufacturing of new vehicles and the heavily integrated automotive supply chain between the three countries, the ripple effects of these tariffs, depending on how they are implemented and how long they remain in effect could be widespread. For dealers, there is considerable pressure, not only on new car sales going forward, but also the used vehicle market.

Inventory challenges
Brent Ravelle, President of the Ravelle Group of Companies, which owns multiple rooftops, including Chrysler and Ford franchise locations, says that on the used car side, things have been challenging since the COVID-19 era. “Our biggest issue,” he says, “is finding inventory.” He notes that while volumes have improved over the last few years, lease returns remain far below what they were pre-COVID-19, and this continues to make acquiring good used inventory difficult.

Ravelle notes that if a dealer has a progressive new car franchise that does significant volumes, it can at least, in theory, still pull in enough customer trade-ins to maintain a 1:1 new/used ratio. The problem, he explains, is that today, customers are tending to keep their vehicles longer, meaning there is a greater probability of those trades being more suitable for wholesale than retail, depriving dealers of prime used inventory that they can retail profitably.

“Currently, I’m running on average, around 1 new vehicle to 0.7 used across our stores,” says Ravelle. It can range for every two suitable trade-ins for every 10 new vehicles sold on the domestic side, to five or six to 10 on the import side.

Strong competition
He says it’s also proving a challenge to find inventory through auctions these days, not helped by the relative weakness of the Canadian Dollar compared with the U.S. Greenback, which is making the Canadian market far more beneficial to American wholesalers and dealers who can scoop up inventory here, even at inflated prices due to demand and still turn these vehicles for a significant profit in the U.S.

At Auto Trader, Baris Akyurek, Vice President, Data and Insights, says that on the consumer side, prices are likely to be a key factor going forward, but there are several factors currently playing out that are turning the traditional demand/supply situation on its ear. Over the last few years, he says that used car prices have been trickling downward, aided by an increase in new vehicle availability, but with the threat and implementation of tariffs, what happens next is tough to predict. “Normally, when supplier is higher, prices are lower and there are more incentives available on the new side, which relieves pressure on the used side.”

Potential price increases
Yet, if the tariffs significantly drive up the cost of new vehicles, we could see a similar situation to the COVID era when used vehicle prices skyrocketed. Akuyrek notes that in 2021, used car prices spiked by 21.7%, and there is risk of a similar scenario playing out once again.

He says that Auto Trader has seen a lot of activity in the used car space in Canada, particularly in advance of the April 2 deadline for auto related tariffs from the Trump Administration. And this comes amid supply levels that are already constrained.

Traditionally, Akyurek says that when it comes to used car prices, they tend to peak in January and trend downward through the remainder of the year, but in 2025, there’s been an uptick in prices during March, indicating that the effects of tariffs are already being felt in the marketplace.

If this is a harbinger of things to come, it could mean that dealers will find themselves in another situation that while the profitability will likely be there for the used cars trucks they obtain, the trick is going to be acquiring that inventory in the first place.

Brent Ravelle says that like many high-volume used car locations, he is no longer looking for that high front-end gross margin on pre-owned vehicles. Instead, he says the strategy has shifted to a quick turn of volume and effective F&I plans, to keep profitability up and keep used car operations running.

EV considerations
At Auto Trader, Baris Akyruek says that some other interesting trends playing out in the marketplace, include sentiment and demand around electric vehicles. He notes that while Auto Trader’s research points to more interest among consumers (up 9% in 2024 compared with the previous year), whether they would actually consider buying an EV has been trending downward. In 2022, this stood at 68%, in 2023 it was down to 56% and in 2024 it had declined to 46% with further declines expected for 2025 (as this article went to press).

Lower demand has also seen prices decline for EVs, both on the new and used side. The question is, what does that mean for dealers, and will these declining prices and expansion of inventory offset the overall trend in both the new and used vehicle markets? Akuyrek notes that while this is difficult to predict, there are several headwinds that could impact both new and used EV sales.

Firstly, is that relative to traditional ICE counterparts, EVs (battery electrics) have more specified use cases and infrastructure in many cases still remains a challenge, certainly outside of areas that well established markets for these kinds of vehicles. Secondly, with the reduction in government incentives available and the roll back in EV mandates happening south of the border (and likely expected here too), that could limit demand, certainly for the foreseeable future.

Surging demand
As for hybrids and even plug-ins, demand is surging on both the new and used side, though this plays into the larger marketplace, meaning that dealers will need to be very strategic in the used vehicles they acquire and be fast and efficient in turning them, while at the same time providing sound F&I and protection programs to bolster profitability and provide assurance for their customers.