Supply Chains Under Fire: What It Means for Your Lot

The backbone of every dealership isn’t just the cars on the lot—it’s the supply chain that gets them there. With a proposed 25% tariff on imports from Mexico and Canada, the automotive supply chain is facing its toughest challenge yet. Here’s what that means for you, the dealer.

Why the Supply Chain Matters to Dealers

You might not think much about the journey a car or part takes before it reaches your dealership, but the supply chain impacts everything—availability, costs, and even the time it takes to fulfill customer needs.

• From Mexico: Mexico is the top supplier of auto parts to the U.S., with components like engines, transmissions, and electronics flowing seamlessly across the border. It’s also a powerhouse for complete vehicles, exporting nearly 4 million cars per year to the U.S.—making up a significant portion of dealer inventory.
• From Canada: Canada exports complete vehicles and critical parts, including aluminum and steel used in manufacturing. While smaller in volume compared to Mexico, Canada remains a crucial partner in maintaining the steady flow of inventory.

A tariff hike could throw a wrench into this carefully orchestrated system, creating delays and driving up costs at every level.

The Domino Effect of Tariffs

If the tariff goes into effect, here’s how it could disrupt the flow:

1. Production Bottlenecks: Manufacturers that rely on parts from Mexico and Canada will face higher costs and possible shortages, leading to delays in vehicle production.
2. Parts Shortages: Even something as simple as a replacement part might become harder to source, causing frustration for your service department and your customers.
3. Delayed Shipments: Fewer cars and parts will make their way to the U.S. on time, tightening supply and leaving dealerships scrambling to meet customer demands.

What This Means for Your Dealership

• New Car Dealers: Expect delays in vehicle arrivals and increased MSRP as manufacturers pass the tariff costs down. With less inventory on the lot, you’ll need to find creative ways to meet customer needs.
• Used Car Dealers: A restricted flow of new cars means more buyers looking for pre-owned vehicles. While this increases demand, it also raises auction prices and sourcing costs, squeezing your margins.

The Role of Auctions in a Tight Market

For used car dealers, auctions will become an even more critical resource. Here's how you can leverage them effectively:

• Focus on diversifying your inventory mix to include high-demand vehicles.
• Stay ahead of pricing trends by closely monitoring auction activity.
• Build relationships with trusted auction partners who can provide reliable inventory, even in tight markets.

Stay Ahead by Staying Prepared

The supply chain disruptions from a tariff hike aren’t just hypothetical—they’re a likely reality if this policy goes through. Dealers who prepare now, by understanding market dynamics and solidifying their sourcing strategies, will be better positioned to weather the storm and even find opportunities for growth.

But what happens when supply chain disruptions lead to rising prices across the board? That’s where tomorrow’s article comes in. We’ll dive into the ripple effects on new and used car pricing and share insights on how dealers can navigate these challenges. Stay tuned—you won’t want to miss it!