By Jonah Gjertson, Senior Consultant at Blue & Co.

Introduction

The U.S. retail automotive dealership market in 2025 stands in uncertainty, shaped by a mixed bag of economic recovery, technological innovation, and geopolitical trade tensions. With over 16,000 franchised dealerships and more than 26,000 used car outlets nationwide, the sector is a cornerstone of American commerce, employment, and consumer mobility. However, the implementation of sweeping tariffs on imported vehicles and auto parts has introduced new volatility, challenging traditional business models and reshaping inventory strategies. In this analysis, we explore the current state of the dealership market, the multifaceted impact of tariffs, and what dealers may expect for per-unit gross profit.

Market Overview and Structure

Prior to the tariff strategy in 2025, the market was projected to grow at a compound annual rate of 4 percent, driven by rising consumer demand, expanding credit availability, and a rebound in vehicle affordability following post-pandemic inflationary pressures.

However, after the announcement and implementation of President Trump’s tariff policy, Cox Automotive’s July forecast has been updated to 15.6M, below July 2024’s forecast of 15.8M. 2025 data includes the benefit of the Q1 ’25 sales rush from consumers to avoid additional tariff prices on all imported vehicles. We anticipate that 2026 may be lower unless tariff policies significantly change. The Cox Automotive’s Q2 Dealer Sentiment Index (CADSI) reveals a nuanced picture: while franchised dealers report improved profitability and customer traffic, independent dealers remain cautious amid tightening inventory and rising costs.

Tariffs and Their Impact on Dealerships

U.S. tariffs affect nearly half of all vehicles sold in the U.S., disproportionately impacting entry-level and midrange models that rely heavily on foreign manufacturing¹. According to Cox Automotive, tariffs and political uncertainty have surged into the top five concerns among dealers, alongside interest rates and general market conditions².

The immediate consequence has been a sharp decline in the availability of vehicles priced under $30,000, which now represents just 13.6 percent of new car inventory—down from 38 percent in 2019^¹. Automakers have responded by curtailing imports, shifting production to domestic facilities, and slashing incentives. Kia, for example, redirected inventory from South Korea to Canada and reallocated U.S.-built vehicles to domestic dealerships, which is estimated to save $435 million in tariff-related costs^³. Ford (F), despite its domestic manufacturing footprint, warned of a $2 billion tariff hit in 2025 impacting imported parts and materials, prompting price adjustments and reduced promotional offers⁴.

Dealerships have had to adapt quickly. Many are retaining aged inventory, reevaluating trade-in valuations, and prioritizing high-demand used vehicles. The wholesale market has tightened, and floor plan costs have risen due to higher interest rates. Dealers report that trades are now worth more than book values, reflecting the inflationary pressure on replacement costs.

Used vehicle strength is reinforced by the annual average Manheim Used Vehicle Value index maintaining above 200.00 as well as Carvana (CVNA), a national used vehicle distributor, reported record Q2 units, revenue, and net income. Carvana expects a sequential increase in retail units sold and adjusted EBITDA in 2025⁴.

Dealer Sentiment and Strategic Shifts

Cox Automotive’s CADSI survey of 977 dealers reveals a mixed sentiment. While franchised dealers remain optimistic, buoyed by strong spring sales and improved profitability, the overall market index fell to 42, indicating that more dealers perceive conditions as weak than strong. The outlook index dropped sharply from 58 to 45, reflecting growing anxiety about the next quarter. Inventory levels have tightened, with new-vehicle stock falling to their lowest since 2022, and used-vehicle inventory also declining².

Electric vehicle (EV) sentiment has slipped, which we anticipate will continue to decline now that the federal tax credit is expiring September 30, 2025. However, Cox Automotive predicts that electrified vehicles will account for 25 percent of all sales in 2025, with battery EVs making up 10%. Dealers that have invested in charging infrastructure and training to meet historical demand are met with uncertainty and are exploring monetization strategies for the EV related capital investments.

Policy Responses and Industry Outlook

The federal government has taken steps to mitigate the impact of tariffs. President Trump’s executive order in April aimed to ease auto tariffs, and a new trade agreement with Japan reduced duties from 25 percent to 15 percent. Toyota welcomed the deal, noting that it would ease pressure on Japanese exports and stabilize pricing for U.S. dealers⁵. Additionally, European automakers see relief on the horizon as the U.S. and the European Union announced a tariff agreement of 15 percent, reduced from 25 percent. The European trade agreement provides relief to automotive models such as the Audi A Series, Audi Q Series, Audi S Series, BMW 2-8 Series, I series, X-series, and the Mercedes C-Class, G-Class, GLA, S-Class, and most Porsche models⁶. Furthermore, in late July, the U.S. and South Korea announced a trade-agreement that reduces the tariff for imported goods to 15 percent from 25 percent. The tariff agreement reduces the impact on most Kia, Hyundai, and Genesis models⁶. Notably absent from the agreements are Canada and Mexico which remain at 25 percent and are scheduled to increase to 35 percent, effecting models from General Motors (GM), Ford (F), and Stellantis (STLA)⁶.

Dealers are advised to monitor pricing trends, negotiate trade-in values aggressively, and consider leasing or certified pre-owned options to maintain profitability and capture used inventory.

Profit Per Vehicle Analysis

Analyzing the financial performance of Penske Automotive Group and Lithia Auto Group, we observed an average new vehicle PVR of $4,309, used vehicle PVR of $1,902, and F&I PVR of $1,880. We expect that the new vehicle PVR observed is higher than most automotive groups experience due to Penske’s concentration of luxury brands. Overall, we anticipate that new vehicle PVRs will face a 2026 a reduction of 25 percent for new vehicles, 10 percent for used vehicles, and no change for finance & insurance products (F&I).

Final Thoughts

The U.S. retail automotive dealership market in 2025 is navigating complex terrain shaped by tariffs, shifting consumer preferences, and technological transformation. While the industry has demonstrated resilience, the path forward requires agility, strategic foresight, and collaboration across the value chain. As trade negotiations unfold and market conditions stabilize, dealerships that adapt quickly and invest in long-term capabilities will be best positioned to succeed.

Questions? We’re Here to Help.

If you are wondering how the current U.S. trade policy or economic conditions may impact the operations or value of your business, don’t navigate these questions alone. Reach out to your local Blue & Co. advisor to explore how these updates affect your business and how we can help you prepare.

About Us

Jonah Gjertson, Senior Consultant with Blue & Co., is a seasoned professional with a background in corporate development and business valuation. From 2022 to 2025, he served as a Corporate Development Analyst at Gee Automotive Companies, where he contributed to strategic growth initiatives within the retail automotive sector. His experience spans equity evaluation, financial modeling, and strategic consulting, and he has been praised for his analytical rigor and collaborative leadership in both academic and professional settings.

Sources

• Singh, C. (2025, July 22). Why new cars under $30K may be less common in the tariff era. USA TODAY. https://www.usatoday.com/story/cars/news/2025/07/22/new-cars-under-30k-less-available-tariff-impact/85310791007/
• Cox Automotive. (2025, May 21). Q2 2025 Cox Automotive Dealer Sentiment Index reveals market momentum amid tariff concerns. https://www.coxautoinc.com/news/q2-2025-cadsi
• Daniel, J. (2025, July 25). Kia adjusts US operations, slashes incentives amid tariff impact. CBT News. https://www.cbtnews.com/kia-adjusts-us-operations-slashes-incentives-amid-tariff-impact/
• Investor relations materials.
• Campbell, J. (2025, July 24). Toyota welcomes U.S.-Japan trade deals, calls for further tariff cuts. CBT News. https://www.cbtnews.com/toyota-welcomes-u-s-japan-trade-deal-calls-for-further-tariff-cuts/
• Masterson, P. (2025, June 17). Which cars are made outside the U.S.?com. https://www.cars.com/articles/which-cars-are-made-outside-the-u-s-492306/
• Cha, V. & Lim, A. (2025, July 31). South Korea gets its trade deal with the United States. Center for Strategic and International Studies. https://www.csis.org/analysis/south-korea-gets-its-trade-deal-united-states
• Lawder, D., Hunnicutt, T., & Pelaez-Fernandez, Trump hits dozens of Countries with steep tariffs, including 35% for Canadian goods. https://www.reuters.com/world/americas/trump-hits-dozens-more-countries-with-steep-tariffs-2025-07-31/
• (2025, April 14). The 2025 auto tariff impact: What dealers need to know now. https://www.kenect.com/blog/the-2025-auto-tariff-impact-what-dealers-need-to-know-now