Tariffs on raw materials like steel and aluminum have the potential to increase repairable claims costs on both sides of the border, says Ryan Mandell, director of claims performance at Mitchell, an Enlyte Company.
Canadian carriers could see those costs rise by approximately 1% or 2% once they go into effect, Mandell told Canadian Underwriter in a statement.
On Feb. 10 and 11, 2025, U.S. President Donald Trump signed two executive orders that will impose a 25% tariff on imports of steel and aluminum products from all countries, including Canada, starting Mar. 12, 2025.
Several original equipment manufacturers (OEMs) — General Motors, Ford, Stellantis, Toyota and Honda, to name a few — have manufacturing operations in Canada, which could help insulate them from tariff exposure.
However, about 62% of the automotive parts imported into Canada come from the U.S. In addition, the U.S. gets 25% of its steel and 68% of its aluminum from outside of the country, Mandell says.
Predictably, these tariffs will drive parts costs higher, he said in a Mitchell webinar Thursday.
Vehicle values also face tariff uncertainty.
When forecasting what vehicle values could look like six months from now, “we’re still about 13% inflated in Canada above where we would normally expect those vehicle values to be [pre-COVID],” Mandell says.
“However, tariffs have really thrown a wrench into those projections,” he says. “The reality of raw material tariffs, right now, is definitely something that is cause for concern from both a whole vehicle side and from a parts standpoint.”
About a year to a year and a half ago, vehicle values started to decline in North America. And while they’re still declining in Canada, the U.S. is seeing signs of stabilization.
“What we often see is that the U.S. can represent a harbinger of what we can expect to come in Canada, and it’s usually about six to nine months ahead of time,” Mandell says. “So, what we’re seeing in the U.S. right now is values started coming down roughly about six to nine months earlier than they did in Canada.
“Looking to some of the data that we see in the U.S. can be a way to help forecast some of the trends that you might see in Canada.”
At the same time, total loss frequency is increasing, because vehicles are costlier to repair than before.
What that means for car purchases
Mandell presented the webinar on Feb. 27, the day Trump reaffirmed tariffs on goods would proceed on Mar. 4. The latest on steel and aluminum tariffs is that they’ll proceed Mar. 12.
Not surprisingly, the cost of buying a new vehicle will increase, which means drivers on the market for a new car may look to buy a used vehicle instead.
TD economists estimate that average U.S. retail prices for cars could increase by US$3,000.
“When we look at the whole vehicle side, there’s been a lot of estimates thrown [around] about what these tariffs will do to the cost of vehicles,” Mandell says. “No surprise, it’s going to increase that cost.
“That will naturally drive more demand for used vehicles and will upend the trend of declines that we’ve seen over the last year and a half,” Mandell says. “So, we do expect that values will start to flatten out and actually probably start to go up as these tariffs work their way through that manufacturing process.”
The supply chain impact on parts stemming from tariffs is also highly complicated.
“And because there’s a lot of different components of that vehicle that can be affected by these tariffs, multiple components can be tariffed multiple times,” he says. “If they’re crossing different borders, sometimes parts will be produced in one country, brought back into another for final assembly, and then crossed the same border again to go back for distribution and delivery. It’s a very complex supply chain at play here.”
Of course, there is variability in what could happen when and if tariffs hit.
“This is us trying to gain some sort of understanding about what this could possibly mean for Canadian insurers and the cost of repair,” Mandell says.
Feature image by iStock.com/RainerPlendl
