By Jonah Gjertson, Senior Consultant at Blue & Co.
Starting Point
Tariff Update
According to Autonews, the Trump Administration’s tariff relief for engine manufacturers, steel and aluminum companies, and automakers signals a significant victory for the domestic automotive industry. Simply put, the move effectively makes vehicle and parts production in the U.S. less expensive.
Autonews reports that Automakers can now apply for a tariff offset equal up to 3.75 percent of the aggregate sticker price of vehicles they assemble in the U.S. through April 2030. The offset is a reimbursement roughly equivalent to the duty that would be owed on a vehicle when a 25 percent tariff is applied to parts accounting for 15 percent of its overall value. The update also directs the Commerce Department to reduce tariffs on steel and aluminum by up to half for certain Canadian and Mexican metals companies. Duties on most steel and aluminum imports, as well as certain derivative products made from those metals, are currently 50 percent.
As noted in our prior analysis, domestic manufacturers found themselves at a disadvantage as the European Union, Japan, and South Korea had reached tentative trade agreements to reduce the impact of tariffs for goods imported from those countries. While automakers such as Toyota, Honda, Subaru, Mazda, Volkswagen, BMW, and Mercedes-Benz would see a reduced tariff impact, Ford and General Motors would not see similar benefits for parts, materials, and work-in-progress vehicles crossing Canadian or Mexican borders. The extended and expanded offset would work to remedy this imbalance.
The tariff updates mean that General Motors expects $0.5B – $1.5B relief from the tariff burden, or a 35 percent decrease from the previous expected tariff burden. Ford Motor anticipates a net tariff impact of $1.0B, down from $2.0B in the prior quarter¹. The reduction in the tariff burden will likely reduce the expected degradation of nPVRs in 2026 for domestic brands.
Q4, Battery Electric Vehicles, and Luxury Vehicles
Lithia Automotive and Asbury Automotive presented very different visions for Q4 2025 regarding nPVRs. Asbury Automotive anticipates that their nPVRs for Q4 2025 will remain steady at around $3,180 as their portfolio is heavily skewed towards luxury brands. Lithia Automotive anticipates a weaker-than-usual Q4 due to the rush to purchase BEV in August and September. BEVs had an average selling price of $55,544, approximately 12 percent more than the average new car. Our forecast aligns more closely with Lithia’s concern that the demand for higher-end vehicles may have been pulled forward in Q3, as consumers purchased BEVs ahead of the tax credit expiration. This could mean that dealerships may not see the typical Q4 bump in nPVRs from Q3. Additionally, Lithia stated that its luxury brands and import brands had flat performance in the quarter.
Regarding BEVs, Lithia Automotive started September with about 9,000 BEVs that qualified for the tax credit and ended the month with just about 2,000. A significant portion of the BEVs on their platform would qualify as luxury vehicles and were leased at nearly 40 percent. A tertiary benefit of the BEV rush and the lease penetration is that a new wave of first-generation BEV ownership would return in 24-48 months, with 2026-2027 BEV models potentially offering an additional 100 miles of range and other significant quality-of-life improvements. While the BEV rush may hamper the typical Q4 nPVR bump, the group expects positive developments in the next three years as the leaseholders remain in their dealership system. Sonic Automotive also expressed uncertainty about nPVRs heading into the fourth quarter.
Each of the dealership groups sampled noted that while the sales of BEVs generated higher-than-expected volume and revenue for the quarter, the greater percentage of BEVs in total new vehicle sales reduced net nPVR by roughly $100. We would expect nPVRs in Q4 to be flat or higher as demand for more expensive vehicles was pulled forward in Q3. However, BEVs are expected to make up a significantly smaller percentage of total new vehicles sold for Q4.
Used Vehicles and F&I Oasis
Lithia Automotive has a positive view of the used car market overall. The company sees a significant opportunity in the Value Auto Segment – vehicles under $10,000. These lower-cost vehicles are only financed about 50 percent of the time, while certified pre-owned vehicles are financed almost 90 percent of the time. Capturing a greater share of the value auto segment may reduce a dealership’s exposure to subprime loans and potential affordability issues with consumers. That said, lower-cost vehicles are quite rare once reconditioning services are factored in. Dealerships typically expand their value-auto portfolio through high-quality trade-ins or applicants who are willing to finance at a high loan-to-value ratio for the vehicle. Lithia states that only 11 percent of used vehicles sold are one to three years old, with three to eight-year-old vehicles, and nine-year-old and up vehicles making up 26 percent and 63 percent, respectively.
Each of the public dealership groups sampled agreed in principle on one key point: aftermarket finance and insurance products will remain above pre-pandemic levels and continue to account for a larger share of total gross profit. As F&I volumes and PVRs continue to grow, dealerships should be aware of any regulatory developments, exposures, or competing products or services that are available to them. We anticipate that fPVRs will continue to post modest improvements in 2026 as the average transaction price of new vehicles recently crossed $50,000.
PVRs and Expectations
New – In the near term, we expect nPVRs to experience a modest bump in Q4 due to seasonality (+), pull-forward of demand from Q3 (-), and a reduced share of BEVs of total new sales (+). Long-term, we anticipate nPVRs will settle between the low $3,000 to the high $2,000 range.
Used – In the near term, we anticipate uPVR to remain in the high $1,000 range as the average transaction price for new vehicles bolsters the attractiveness of used vehicles (+), high BEV lease penetration leading to used vehicle acquisitions (+), and an ongoing concern with subprime lending and affordability (-).
F&I – We anticipate that fPVRs will remain flat in our forecast. Each of the dealership groups sampled indicated that F&I continues to make up a significant portion of total gross profit.
Closing
Data
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
- Various companies. Investor Relations Materials and Earnings Calls. 2025. Public filings of General Motors, Ford Motor Company, Lithia Automotive, Sonic Automotive, Asbury Automotive, and Penske Automotive.
