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"Affordability is a persistent challenge for consumers and dealers," National Auto Dealers Association President and CEO Mike Stanton said in February in response to proposed and implemented tariffs on Canada, Mexico and China. "Tariffs on U.S. trading partners, who are vital to our automotive supply chains, would make it harder for average Americans to afford the new vehicles of their choice."
Financial roadblock
The new 25% tariffs will pressure the bottom line for auto dealers' parts and services business, which is a critical component of the dealership business model. On average, 47% of dealership revenue comes from the parts and service departments, according to the National Automobile Dealers Association.
Parts and service departments are "often the single largest contributor gross margin to the dealership," Ryan Kerrigan, managing partner at Kerrigan Advisors, told American Banker. Kerrigan Advisors is an Irvine, California-based dealership sell-side advisory and consulting firm. "It's by far the most stable element of the business model."
Whereas car sales ebb and flow with weather and the calendar — three weekends versus five weekends in a month, for example — parts and services is a far steadier flow of business for dealers, Kerrigan said.
The average current cost to repair a vehicle in the U.S. is about $838, according to Cox Automotive. That figure represents a 6% year-over-year increase in the average cost for vehicle maintenance and repair in U.S. cities as of February, according to the Bureau of Labor Statistics. Over the last five years, the cost of repairs has increased 39%.
By comparison, the average cost of motor vehicle parts and equipment has not grown at the same rate. As of February, the average price of parts increased just over 1% on a year-over-year basis, and 23% since February 2020, according to the BLS.
A 25% tariff on parts would push up prices for some of the most expensive repairs consumers have to grapple with, Kerrigan said.
"Depending upon the repair, a lot of the time the parts are a relatively small percentage of the overall bill. In that case, there's probably minimal effects. But I can imagine, with more expensive parts — a $1,000 part or a $2,000 part — 25% starts to add up quickly," he said.
Couple tariffs with an increasing average age of vehicles on the road — 12.6 years, according to S&P Mobility — and repairs are bound to be more frequent, Bruce Newmark, president of consultancy firm Fimanco, told American Banker.
"When you're talking about an average unit-in-operation age of 12.6 years, you start dancing around a high percentage of the driving population needing a car because their car is just exhausted," Newmark said. "And there's a question: if you have a 10- or 12-year-old car, should you spend $10,000 to put a new engine and transmission in it? If it's going to cost you $60,000 to buy a new car, maybe repair it."
The convergence of tariffs, rising repair costs and an aging fleet of consumer vehicles has laid the groundwork for more buy now/pay lender lending volume in dealerships' service departments.
Shifting to installments
Aside from BNPL, there aren't many financing options available to consumers looking to make necessary repairs to their vehicles, Newmark said. "If [the customer] owns the car free and clear, they might be able to get a personal loan [or] a title loan where you put up the title and borrow on your vehicle."
Dealerships will offer point-of-sale credit cards for large transactions, Anthony Capizzano, senior vice president and head of consumer lending at Axos Bank, told American Banker.
Those opportunities are limited, though. "Like any other credit card, you'll still need to meet the qualifications of most credit card standards of a [credit score of] 680 and above on average," he said, noting that 75% of dealerships don't have a point of sale for a credit card in their service department.
Traditional auto lenders and banks are adverse to financing repairs because it's not collateralized against an asset, Capizzano said. "Auto lenders are not used to making unsecured loans. Banks make unsecured loans, but, it's this blend of, 'Do I want to go after dealerships?' because you're dipping into your indirect auto business if you have an indirect auto business."
There's also the question of delivering that loan offering at the point of sale. "Banks haven't really set that up," he said.
"The market is wide with a lot of opportunities," Capizzano said.
Auto manufacturers have already been pushing BNPL with their franchised dealer bases even before the latest round of tariffs were announced. Los Angeles-based BNPL provider Sunbit — which specializes in point-of-sale BNPL in the auto repair, veterinary and dental industries — last week became the preferred BNPL provider of Ford Motor Co., co-founder and head of sales Tal Riesenfeld told American Banker.
On March 17, Ford told its 2,800 dealerships that Sunbit is their preferred solution for parts and service financing, Riesenfeld said. "We already had 870 of their dealerships on the program [and] we did over $32 million in parts and service revenue with them in 2024."
Sunbit is the preferred BNPL provider for 15 automakers, including Nissan Infiniti, Honda, Acura, Jaguar Land Rover, Audi, Volkswagen, Kia, Hyundai, Mercedes Benz, Mitsubishi Motors, BMW, Mini and Mazda. The company has also partnered with 24 of the top 25 dealership groups, Lithia Motors, Group 1 Automotive, Sonic Automotive and Penske Automotive.
Riesenfeld said the BNPL product is offered 53% of U.S. dealerships — about 9,300 dealers — and is adding 125 dealerships a month. "We're going to cross 60% this year of market share," he said.
Dealers pay Sunbit a monthly fee of $300 a month, and are also charged between 3% and 5% per transaction, depending on the terms. Sunbit approves 94% of applications.
"Most of our dealerships are 5% because that offers a three-month 0% APR" for the end customer, Riesenfeld said. "This is a high-margin business. If you do two or three transactions above and beyond what you would do without it, it's paid for."
Automakers are actively funding the first month or two for their franchised dealers, Riesenfeld said. "Nissan, [Volkswagen], Mazda, all in the last three months funded a program for two months."
Volkswagen officially endorsed Sunbit in 2019 almost two years after its first franchised dealer started working with the BNPL lender, Mark Thorp, director of aftersales sales operations at Nissan Motor & head of Infiniti aftersales, told American Banker.
"Since the endorsement, we have seen massive adoption, and between Nissan and Infiniti our dealers finance north of $10 million a month with Sunbit," he said.
BNPL provider Affirm has also logged an increase in auto and equipment-related sales. As of Dec. 31, auto and equipment made up 5% — or $500 million — of its total $10.1 billion gross merchandise value and grew 29% year over year, according to the company's
Affirm partners with Audi and Asbury Automotive, according to its website, as well as other auto repair, accessory and servicing businesses. It also has a partnership with Tekmetric, an automotive repair shop management solution used by thousands of automotive repair shops.
"Consumers are looking for payment flexibility and transparency at checkout. This is true generally, but especially for auto repairs, which can be unexpected and, at times, costly, making aftermarket auto a strong fit for Affirm," an Affirm spokesperson told American Banker.
Affirm underwrites every transaction, the spokesperson said, and has facilitated more than $5 billion in loans for auto repair, accessories and servicing as of summer 2024.
Still, more dealers may be slow to adopt BNPL even with OEM endorsements because of the importance repairs are in the sales cycle, Axos' Capizzano said.
"Dealerships will take those large transactions and try to convert those into new-car sales," he said. "For example, if you have a $2,500 bill, you could either put that down [to fix] your used car, or I could give you that same payment and you could save $2,500 on a new car."
But tariffs will make new cars less affordable, which could stifle dealers' ability to sell cars.
"New car [prices] are going to go up. Used-car [prices are going to go up because of reconditioning," Capizzano said. Reconditioning is the process where dealers inspect, repair and detail used cars before reselling them.
And while increased access to BNPL loans may make unexpected car repairs affordable, increased debt is not always in the best interest of consumers, Lauren Saunders, associate director at the National Consumer Law Center, told American Banker.
"Shopping for reasonable auto repair costs is very difficult, and many people find themselves surprised by the high cost of auto repairs," Saunders said.
"Buy now/pay later loans can be more unaffordable than they look if they have a short repayment period, which is basically one rent or auto loan payment cycle," she said. "People are still gonna have to pay those, those next 3, 4, 5 payments at the same time that they're still gonna have to pay their rent."
