Used-Car Prices at Risk of Rising Should New-Car Tariffs Go Into Effect | Auto Finance News | Auto Finance News

Used-Car Prices at Risk of Rising Should New-Car Tariffs Go Into Effect

Though the proposed auto tariffs are geared toward new vehicles and their parts, the trickle-down effect could mean higher used-car prices and volumes.

“If tariffs are put into place, we are assuming that the manufacturers will need to raise prices as they cannot absorb the additional costs of the vehicles,” said Joe Halovanic, a vice president at RVI Analytics. “In this instance, the current supply of vehicles in the used marketplace would see values increase. This is due to consumers moving from the new-vehicle market to the used-vehicle market as they are priced out of the market for new vehicles.”

Should the tariffs be implemented, the impact would be measurable in “weeks, if not days,” said Eric Ibara, director of residual value and cost-to-own at Kelley Blue Book.

“To a certain extent, dealers will have some cushion depending on their inventory in stock,” he added. “But after two or three months, the effects of the tariff will likely be widely felt.”

Manufacturers and their captives, though, could offset some of the price increase through incentives. “Over time, de-contenting some vehicles may help alleviate additional costs, and currency fluctuations could help or hurt cost containment,” Ibara said.

In the U.S., specifically, vehicle manufacturers have the benefit of the “substantial corporate tax reduction this year,” Ibara said, the savings from which could offset some of the tariffs. Should OEMs absorb the tariffs without passing on the costs to new-car buyers, used-car prices would remain stable, he added.

On the flip side, “captives could reap the benefit of higher-used car prices,” Ibara noted. “Should the tariffs remain for months and/or years, used-car values will rise on those vehicles that are targeted with the tariffs. If substantial, these could result in higher residual values, which will help alleviate the sting of the tariff but could also mitigate some of the residual value loss on the off-lease vehicles that run through the auction lanes.”

Lessors, specifically, “need to be prepared for the newer, more expensive vehicles to not retain their value as well as the vehicles currently in the used marketplace,” said RVI’s Halovanic. “This means if they are active in leasing, they should expect the vehicles with MSRP increases due to tariffs to see residual values as a percentage of MSRP lower than the current level, all else being held equal. This also means that leasing will become less attractive, as payments will increase due to the higher MSRP and lower residual percentages.”

For now, both RVI and Kelley Blue Book are watching how the tariff situation unfolds.

“We are waiting to see what actually happens in regards to the tariffs being put into effect before recommending any changes to strategy,” Halovanic said.

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0 thoughts on “Used-Car Prices at Risk of Rising Should New-Car Tariffs Go Into Effect

  1. If the manufacturer’s captives structure their 24/36 month leases with reasonable residuals, those short term leases won’t hurt the industry.  The risk is in enhancing residual beyond actual resale values.  Then you have the possibility of large losses, especially if gas price fluctuations hurt part of the market like they did in 2008. 

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