The 25% Import Tariff On Cars: A Collision Repair Market Breakdown

The U.S. government's recent implementation of a 25% import tariff on foreign-manufactured vehicles and automotive parts is poised to create a significant shift in the collision repair industry. Here’s how the effects are likely to play out:

1. Escalation in Repair Costs Due to Pricier Imported Parts

The 25% tariff significantly raises the cost of imported vehicles and, crucially, the parts used to repair them, many of which are not manufactured domestically at a sufficient scale. These include bumpers, sensors, lighting assemblies, radiators, and electronic control modules.

• Nearly 50% of replacement parts used in repairs are estimated to be imported, especially for European and Asian brands.

• As a result, body shops and collision centres will face increased procurement costs, likely to be passed on to consumers through higher repair bills.

• The complexity of modern vehicles—especially those equipped with advanced driver-assistance systems (ADAS)—means even minor collisions require expensive parts for calibration and replacement. A 25% increase in parts prices will have a material impact before any relocation or scaling of manufacturing facilities can be feasibly done.   

2. Increased Insurance Premiums Following Higher Repair Expenses

Auto insurers calculate premiums based mainly on the cost of claims. As parts and labour become more expensive, insurance claims will rise, prompting insurers to raise premiums to maintain margins.

• Domestic insurers are anticipating a significant increase in full-coverage car insurance premiums. Inevitably, non-domestic brands will bear the brunt of any increase, reflecting a higher risk and cost profile. 

• These increases reflect the knock-on effect of higher repair costs. For example, the tariff could increase the cost of replacing a damaged bumper on a mid-size SUV from $1,200 to over $1,500.

• Higher premiums may reduce demand for comprehensive insurance, potentially leading more consumers to pay out-of-pocket for repairs. This would strain household budgets and limit discretionary spending in repair shops. It might also result in a reduction in the number of insurance claims.

3. Supply Chain Disruptions Leading to Longer Repair Times

The tariff introduces new friction into an already strained global supply chain for auto parts, many of which come from countries like Germany, Japan, South Korea, and China.

• Collision repair shops often depend on just-in-time inventory systems. Delays in part availability due to import taxes and logistical bottlenecks can extend repair times by days or weeks. US ports and airfreight are already experiencing a demand slump (source: Financial Times).

• Estimates vary, but the new tariffs could affect over 150 categories of automotive parts, potentially causing widespread disruptions in parts availability.

• Longer vehicle repair times can result in increased rental car expenses (borne by insurers or customers) and reduced shop throughput, thereby squeezing repair shop profitability.

4. Shift in Consumer Behaviour Towards Vehicle Maintenance

As the cost of new cars rises and/or the lack of supply - consumers may be more inclined to repair and maintain their existing vehicles rather than buy new ones.

• This change in behaviour benefits the collision repair sector by increasing demand for services; however, it also means a larger share of older vehicles on the road, which may be more complex or costly to repair due to wear and tear.

• However, older vehicles may require hard-to-source parts, especially if their models are no longer in production or heavily reliant on foreign-made components, compounding the parts availability issue.

• This might lead to a collapse in imported brands' used car value as consumers avoid higher insurance premiums and/or higher repair costs.

5. Financial Strain on Independent Repair Shops

Independent and small collision repair shops typically operate with tighter margins and limited parts inventories. The tariff may place disproportionate pressure on these businesses.

• Larger Multi-Site Operator repair networks may be able to negotiate better terms with suppliers or stockpile parts, but small businesses could be priced out or unable to complete repairs in a timely manner.

• Crash Repair Centres that rely heavily on imported parts will be particularly affected, leading some to raise prices, reduce staff, increase the proportion of repair versus replacement parts, use more recycled parts, or close altogether.

• This financial strain could also curtail the ability of small shops to invest in training and diagnostic equipment necessary to service newer vehicle technologies, further reducing their competitiveness.

6. Potential for Market Consolidation

With increased operational pressures, industry consolidation may accelerate. Larger companies, including dealership-owned body shops or nationwide repair chains, could absorb smaller independents that cannot weather the financial turbulence.

• Consolidation could lead to reduced competition, higher consumer prices, and more standardised service across the industry.

• At the same time, larger firms may benefit from economies of scale in sourcing parts and technology investments, helping them better manage tariff-induced cost increases.

8. Impact on the Used Car Market and Ageing Vehicle Fleet

As new vehicle prices climb due to the combined effects of tariffs and inflation, the used car market will likely see increased demand.

• This shift will result in more older vehicles on the road, statistically more likely to be involved in collisions and require repairs.

• Older vehicles often have more variable parts availability, especially if they are imported makes, which could drive up repair complexity and cost.

• Crash Repair Centres should anticipate a greater share of work involving older, less standardised vehicles.

7. Encouragement of Domestic Parts Production

Over the longer term, the tariffs may incentivise domestic auto parts manufacturing, particularly for high-demand and high-margin components.

• However, establishing new supply chains or increasing domestic production capacity will take several years and require significant capital investment during interest rate uncertainty. 

• In the interim, the transition could lead to inconsistencies in part quality, longer lead times, or reliance on aftermarket or used components to fill gaps.

Conclusion

The 25% import tariff on cars and parts introduced by the U.S. government is expected to have broad and lasting effects on the collision repair industry. While it may stimulate domestic parts manufacturing in the long run, in the short- to medium-term, it will most likely:

• Increase repair and insurance costs.

• Disrupt parts availability and delay repairs.

• Strain small businesses and encourage industry consolidation.

• Alter consumer behaviour around car ownership and maintenance.

Stakeholders across the automotive and insurance sectors must adapt their operations and pricing strategies to mitigate these impacts and maintain service continuity.