Ep 8 How tariffs will affect USED car prices

In this episode of 'Women Buying Cars,' host Meredith Reynolds of Kansas City discusses the newly imposed 25% tariff on imported vehicles by President Trump and how it impacts both new and used car markets. Meredith explains the complexity of car assembly processes, involving multiple countries, and how tariffs on parts and final assemblies can lead to increased car prices. She predicts that the price hikes on new cars will shift demand to used cars, causing a rise in their prices as well due to decreased supply. Meredith also highlights the implications for small dealerships and offers advice for car buyers to purchase sooner rather than later. Additionally, she reviews the Chevy Traverse, emphasizing its spaciousness and recommending it for those needing a roomy SUV.

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Transcript

0:02

You have probably heard by now that President Trump is putting a 25% tariff on vehicles that are brought into the United States from other countries. This is on new cars. How could this affect the prices of used cars? We will discuss that today, so stay tuned. You are listening to women buying cars, and I'm your host Meredith Reynolds. I'm a former teacher turned used car dealer, and I'm here to teach and empower women to walk into a car dealership with confidence and walk out with the car that's right for them. Thank you so much for listening. I appreciate you tuning in. Shout out to Whitney who came into our dealership, Reynolds Automotive a couple of weeks ago and said, oh, hey, I've been listening to your podcast, and I just about fainted. So thank you so much, Whitney, for making my day. You're the first person. Who is not related to me to tell me they've been listening or not a good friend, someone I don't know who has been listening to my show, and I am incredibly grateful. So thank you so much. If you are in the Kansas City area, you can also watch me almost faint if you'll come in and say hi to me At Reynolds Automotive, we are in Merriam, Kansas, which is a suburb of Kansas City. Okay, so today we're going to talk about tariffs and the effect on the used car market, but first, let's just do a brief summary and a little bit of information. On these tariffs and how they affect new cars. So this is a 25% tariff on cars not assembled in the United States. It goes into effect April 3rd, and parts that go into cars will also have their own tariff beginning May 3rd. Now, all of this could change, as we all know, because this type of thing has been a real rollercoaster. Putting a tariff on, taking it off, delaying it, saying it's back. So a lot of this is speculation and could be much ado about nothing. Or it could go into effect and we could all start feeling that. So 25% tariff on all cars brought into the United States. Currently that's about half the cars that we buy here in the United States, and of the half that are assembled here in the United States, 60% of their parts come from outside the United States. So this tariff will be felt by. Every car company, whether they make their cars here in the United States or outside of there now I say assembled in the United States. Not made in the United States because of what I just pointed out. There aren't cars that are fully 100% made in the United States. Even Rivian and Tesla, which assemble all their cars here are using foreign parts. The United States, Canada, and Mexico have very fluid assembly lines across their borders. One park could start out in Canada, across the border to the United States, be put into a larger assembly, be taken to Mexico, be put into another even larger assembly, or finished off right there. An example is the Chevy Blazer. The Chevy Blazer has parts that originate in different countries, but they come to the United States, and the United States builds the engine and the transmission for the Chevy Blazer. They then ship that engine in transmission to Mexico. Mexico finishes assembling the entire Chevy Blazer, and then sends it back to the United States. So a part can cross borders multiple times, even upwards of seven or eight times, depending on the part. Each time it's coming into the United States, a tariff is being put on it so it could have multiple tariffs put on this one part as it becomes part of a larger product. Okay. Like I said, nearly half of all the vehicles sold in the United States are imported. Primarily the first source is Mexico. That's where the large majority of the imports come from. Second would be Japan, then South Korea, then Canada, and then Germany. Even brands you associate with being very American. Are not always made here. I told you the Chevy Blazer was assembled in Mexico, as is the Chevy Silverado, the GMC Sierra Ram pickup Jeep Compass. All assembled in Mexico, Canada also makes the Silverado. And then other popular brands like the Toyota RAV4 and the Honda C rv, the RAV4 is assembled in Canada, but 70% of its components come from the United States, including the engine and transmission. So 70% of it is from the us. But because the final assemblies in Canada, it would have a 25% tariff as it comes into the United States. Meanwhile, the opposite is true of some of the Nissan rogues, many of those are assembled in Japan, but a lot are here in Tennessee. The ones that are assembled in Tennessee are made with 75% imported parts, so there's not a tariff on the final product if it was built in Tennessee. But there is a tariff on 75% of the parts that are in it, the Nissan Altima is assembled in Mississippi and Tennessee, But the engine is from Japan. The transmission is from Canada, and who knows about the other parts. So what will all of this do to the price of a new car? Well, there's lots of different numbers flying around as to what. It could do to the price, but an overwhelming majority of analysts agree that the prices are going to go up. I've heard anywhere from two to $12,000 depending on the model. Now, what a company will likely do is take a car that has the highest tariff on it, take that amount and spread it out across all their vehicles so that all their vehicles go up some rather than. A few models going up a lot, probably somewhere in the three to $6,000 range, and that's true even for vehicles that are assembled in the US because of all their imported parts. Once new car prices go up that much, it's likely that the demand for new cars will go down. And they may even have to halt production for a while. Some of those potential new car shoppers will switch to used cars. So for the short term, we may have more sales in used cars. So for the short term, that's a good thing for us. However, once demand goes up for used cars, the supply will go down. And basic economics 1 0 1 will tell you that causes the price of used cars to go up. Some buyers will just hold onto their cars because of the cost, and therefore they won't be trading anything in, and there will be fewer cars entering the used car market because the only reason used cars exist is because people trade them in. And if people are not going to trade in because of high prices, then we have an even smaller supply of used cars. We already went through something very similar to this five years ago during the pandemic production stopped. Then once it started back up again, there was a chip shortage. There were supply chain issues. So there weren't a lot of new cars available. The demand for used cars went way up until the supply of used cars started to dry up. All of that meant that the prices of used cars. Skyrocketed the highest they've ever been and they have stayed up for years. The market was just starting to improve the prices were just now leveling off. So this is really the last thing we want to happen we are feeling the effects of a new car shortage. Five years later. Disrupting the auto market, again has years of effect for us as a small mom and pop dealership, and also for the buyer. The supply of used cars is already lower than it should be because those new cars that were not made during the pandemic, during the chip shortage, because they don't exist. They're now not used cars. People who would've leased a car at that time didn't have them as available. Leased cars should now be coming off of a lease. And becoming a used car, and they're not, The way we get, the large majority of our cars are not as trade-ins. We buy them at auctions. The reason they're at auctions is because dealers, usually, large franchise dealers take the cars that aren't really in their market to auction, and people like us buy them. So if someone trades in a vehicle, that's out of the wheelhouse of the. Manufacturer they're going to buy from. So say they're trading in a Subaru at a Ford dealership, and that's not really a Ford's bread and butter. Normally they would just send it to auction, but because they can see the writing on the wall that they're going to need a lot of used cars, they're holding onto cars like that and they're not selling at them at auction to people like us. Also large franchise dealers or people like CarMax who have a lot of money, a lot of investors, they're buying up the used cars now so that they have them stocked up once they know their customers turn away from new cars. We can't do that. We're a very small dealership. We don't have that kind of liquid capital. So what we're seeing are prices at the auction already starting to rise preemptively. There are fewer cars out there for us to buy, and the prices are already starting to go up. Now we've come to a part of the show. I like to call cars. I love the car. I love. Today is the Chevy Traverse. The Chevy Traverse is a three row SUV. It is quite large though, not as large as Chevy's, suburban or Tahoe. It typically seats seven though there is a trim level that has a bench in the middle so that it seats eight. Something special about the traverse is that the third row is actually large enough for adults. We sell a whole lot more Honda pilots in Toyota Highlanders than traverses, but the Traverse has significantly more leg room in the back and more cargo space behind the third row. So it is overall larger without feeling a ton larger, It actually has 98 square feet of cabin space. That's a lot. There are several different trim levels. the highest being high country and high country is meant to rival luxury SUV brands. Most of the traverses have a five star safety rating, though you will want to check on the exact year and trim level of one that you're looking at. We recently sold a traverse that I knew would not be on our lot very long. It was black on black, which I. I'm not a fan of, but this car I was, it was really good looking. It looked like something the secret Service would drive up in, and it had some red accents. There was a red outline around the word traverse and just a little bit of red on the wheel, and I just thought it looked really cool and sure enough it got smashed up really quickly. The newer traverses get up to 27 miles per gallon on the highway, which is pretty darn good for an SUV of this size. One thing I will say, if you are looking at an older one with higher miles, I would consider getting a warranty when you purchase a Chevy Traverse. First of all, check if the factory warranty is still valid because the powertrain has a five year 60,000 mile warranty from. Chevy, so see if any of that is left. If not, you're just not gonna get the longevity and reliability that you would from a Honda or a Toyota. So my recommendation is to get a warranty. So if you need a roomy three row with big kids that sit in the back, or you need more cargo space than what you'd normally find with a three row SUV, consider. The Chevy Traverse and now back to the show. if you are seriously considering getting a car in the near future. I would advise you to do it sooner rather than later. We often see people at the end of the summer trying to get reliable vehicles for their kid as they leave for college. If you know you're gonna do that at the end of the summer, I would start shopping around Now, don't rush in and buy something you wouldn't otherwise buy. But you might as well start seeing if you can find something now that meets your checklist, because there's no reason to think prices are gonna be lower months from now. So even though these tariffs are on brand new cars, the effect is real for a small used car dealership or a large used car dealership, I mean, I talk about corporations and having all this money, but they have individuals working for them who have to make sales to make money. My nephew is one of them. He's at a large franchise store, and while the franchise will get by just fine, he has to make sales to pay his bills. So anytime there is a disruption in the market. It affects real people who sell these vehicles and also the consumers who don't have the extra money. For cars that are already 20% higher than they were in 2020. In the end, as I said in the beginning. I hope and pray this is all much ado about nothing, but only time will tell. Please share this episode with someone else who needs to understand how tariffs could affect their pocketbook. Thank you so much for listening and happy driving.