Tariffs, Taxes, and Trade Wars

The used car industry is facing a significant challenge with the impending tariffs under the USMCA (United States-Mexico-Canada Agreement). With the potential for increased costs on automotive parts, dealers across North America are feeling the pressure. In the latest LotTalk podcast episode, industry experts discuss the looming trade barriers and how dealers can proactively safeguard their business. One key takeaway? Focusing on the Finance & Insurance (F&I) department could be the best move dealers can make right now.

How USMCA Tariffs Could Disrupt the Industry

The new tariff policies could drive up the cost of parts and repairs, making vehicle reconditioning more expensive. This means higher overhead for used car dealers, longer turn times, and squeezed margins. Dealers relying on cross-border supply chains may find it particularly difficult to maintain competitive pricing. While the full scope of these tariffs is still unfolding, the consensus is clear: dealers must prepare now to mitigate the financial impact.

Some key concerns include:

• Rising Costs of Parts & Repairs – Parts sourced from Mexico and Canada may see significant price hikes.
• Longer Turnaround Times – Delays in supply chains could slow down vehicle reconditioning and inventory turnover.
• Pressure on Margins – Increased costs could make it harder to price competitively while maintaining profitability.

The F&I Department: A Key to Offsetting Costs

With tighter margins on vehicle sales, dealers must look to other profit centers to stay ahead. The F&I department is a powerful tool in this scenario. By maximizing finance and insurance opportunities, dealers can create new revenue streams to offset the rising costs from tariffs.

How can dealers improve their F&I performance?

1. Offer More Financing Options – Working with multiple lenders ensures customers have flexible choices, increasing deal closing rates.
2. Boost Product Offerings – Extended warranties, GAP insurance, and service contracts can add significant revenue while providing real value to customers.
3. Train the Sales Team – Proper education on presenting F&I products can significantly increase penetration rates.
4. Leverage Digital Tools – Integrating online F&I tools can improve customer experience and streamline the process.

Proactive Strategies for Dealers

To navigate these challenges successfully, used car dealers must take a proactive approach. Here’s what industry leaders are recommending:

• Monitor Supply Chain Changes – Stay informed about how tariff policies evolve and adjust sourcing strategies accordingly.
• Improve Inventory Management – Prioritize vehicles that require minimal reconditioning to reduce overhead.
• Strengthen Customer Retention – Implement loyalty programs and service perks to keep customers engaged and coming back.
• Advocate for Policy Adjustments – Join dealer associations to voice concerns and push for regulatory changes that support the industry.

Final Thoughts

While the USMCA tariffs present real challenges, they also create opportunities for dealers to refine their strategies and strengthen their business models. By focusing on the F&I department and proactively managing inventory and costs, used car dealers can stay resilient in the face of uncertainty.

Want to dive deeper into this topic? Listen to the full episode of LotTalk for more insights from industry experts!