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.”  

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