The Trump Tariff on imported cars and car parts is worrying a lot of people from consumers to foreign workers. However, this may prove to be an unexpected boon for BHPH dealerships. It’s still early, but some preliminary data may indicate that the Trump Tariff will significantly boost used car sales.
To begin with, what is the Trump Tariff? In an effort to make production at home more appealing to American automakers, President Donald Trump has proposed a tariff of up to 25 percent on foreign made cars and components. This is causing quite a stir in the new car industry because even vehicles made in the USA contain parts manufactured elsewhere. For example, one of the vehicles comprised of the highest amount of American-made parts, the Jeep Cherokee Crossover, still contains 28 percent foreign made parts, all of which would be taxed under the proposed tariff. If automakers have to pay a 25 percent tariff on those components, the resulting rise in production costs would push the sales price to increase just under $1,800. As one of the best-case scenarios for auto makers, it’s easy to see why new car dealerships are concerned.
Of course, BHPH dealerships are different. One may well ask what, exactly, the Trump Tariff has to do with the Buy Here Pay Here industry. The answer is fairly simple. Early findings suggest that, unsurprisingly, as new car prices rise, buyers will increasingly look for used cars instead. It isn’t only sales revenue that looks ready to increase. With investors looking for higher risk used car bonds yielding better returns, this could potentially bring even more companies clamoring for a piece of the BHPH pie.
One large used car seller already seems to be seeing evidence of that. CarMax has surpassed expectations, with earnings soaring 18 percent, and stock rising an impressive 12.9 percent in one day. It appears that, against the backdrop of the threatening Trump Tariff, these increases may be due to growing interest in used cars as a more economical option. As middle-class wages remain stagnant, if the Trump Tariff is put into effect, the demand for used cars already in the US will almost certainly increase.
Of course, that doesn’t guarantee that there won’t be potential negative effects for BHPH dealers as well. When trade-ins or auction vehicles require repair before being put on the lot for sale, the Trump Tariff will increase the cost of many parts. There is also the possibility of used car auction prices rising to meet increased demand. Lastly, there is the simple fact that, a few years down the road, used vehicles coming onto BHPH lots may have been subject to the Trump Tax, and may come with a higher price tag because of it.
Of course, none of this is certain yet– it is not even clear whether the Trump Tariff will ever be enacted– but the potential profits and losses are things that BHPH dealerships must consider as they plan for the future. For now, BHPH dealers can only watch, wait, and hope that the Trump Tariff, if it comes to fruition, will prove more a boon than a burden. At any rate, it is likely to at least offer a mixed blessing, which is more than new car dealers can expect.