Baris Akyurek is the vice-president of insights and intelligence at AutoTrader.
The automotive market’s steady start to 2025, marked by easing prices and improved inventory, now faces a looming threat: tariffs.
As someone immersed in the industry at AutoTrader, I believe it’s crucial to examine how these tariffs could reshape consumer behaviour, specifically the potential for a significant shift toward the used vehicle market.
Echoes of the pandemic: A lesson in supply and demand
The pandemic taught us a harsh lesson in market disruption. Automakers, anticipating a downturn, slashed microchip orders, supply chains got crippled, which led to fewer cars available in the market, resulting in soaring prices. With new car lots bare, consumers flocked to the used market, driving prices upward (in 2021, used car prices increased by 21.7 per cent). Our research at AutoTrader.ca revealed 31 per cent of used car buyers were there solely because they couldn’t find the new car they were looking for. This highlights a critical point: when access to new vehicles is limited, demand shifts forcefully to used options.
Tariffs: Fuelling the shift to used
Now, tariffs threaten to recreate this dynamic, potentially even more intensely. With highly integrated supply chains across North America, tariffs will undoubtedly inflate new vehicle prices. The natural consequence? A substantial portion of buyers will be priced out of the new car market, turning their attention to used alternatives.
In fact, this is exactly what we heard from car shoppers. We ran a survey between Feb. 7 and 13 on AutoTrader, targeting consumers aged 19 and over who plan to buy a vehicle in the next 12 months. It showed 47 per cent of respondents agreed that potential trade tariffs have affected their vehicle purchasing decisions. Of the 47 per cent:
- 36 per cent said they have reduced their budget
- 30 per cent said they would switch from buying new to a used vehicle
- 29 per cent said they would switch from considering an American brand vehicle to a non-American brand
- 27 per cent said they would compromise on the vehicle brand, model or trim
- 25 per cent said they would delay their purchase
Here’s the critical difference compared to the shift from new to used vehicles that took place during the pandemic: inventory availability in the used car market is healthy but not as robust as it was before the pandemic. The underproduction of new vehicles between 2020 and 2023 has resulted in fewer off-lease vehicles entering the used market (we estimate that 1.5 million fewer cars were sold during this time). Additionally, fewer new car sales mean there are fewer used car trade-ins. We’re essentially facing a scenario where increased demand is meeting a constrained supply. While used vehicle prices saw a welcome dip last year (the largest annual price decline at 12.1 per cent in 2024), this trend is likely unsustainable if tariffs push significant numbers of buyers into the used market.
The key takeaway is that tariffs could act as a catalyst, accelerating the shift in demand from new to used vehicles. This shift, combined with existing supply constraints in the used market, sets the stage for potential price increases and heightened competition for available vehicles. Canadians should brace for a changing market.
Advice for car shoppers
Given these dynamics, here’s what car shoppers should consider:
- Prioritize your needs and budget: Having a clear understanding of your specific requirements will help you make informed decisions, whether you opt for a new or used vehicle.
- Be prepared to act quickly: The used vehicle market could become more competitive, so be ready to seize opportunities when you find the right vehicle at the right price.
- Stay informed and flexible: Market conditions can change rapidly. Keeping abreast of the latest developments will help you adjust your strategy as needed. (Check out AutoTrader’s quarterly Price Index for more information on the latest in Canadian automotive pricing and trends).
The potential imposition of tariffs introduces significant complexity to the automotive market. However, by understanding the potential implications, including the possibility of a shift in demand toward used vehicles, and preparing accordingly, car shoppers can navigate this evolving landscape effectively and with confidence.