The Canadian automotive industry has faced a year of unprecedented challenges and rapid change. From inventory shortages and tariff pressures to shifting consumer preferences and the evolving electric vehicle landscape, 2025 tested the resilience and adaptability of dealerships across the country. This year-in-review explores the key lessons learned, emerging trends, and strategic insights that will shape the road ahead for auto retailers in 2026 and beyond.  

The past year reinforced several critical lessons for Canadian auto retailers. First and foremost, inventory discipline—both new and used—proved essential. Dealers learned that strategic foresight, close coordination with OEM partners, and listening to their sales teams were key to staying agile in a volatile environment.

Sourcing quality used vehicles became a priority. Beyond traditional trade-ins, dealers explored creative strategies such as leveraging service departments to identify potential sellers, building in-house leasing programs to secure predictable supply, and diversifying financing solutions for consumers. These efforts not only stabilized inventory pipelines but also boosted absorption rates as reconditioning supported parts and service revenue.

Digital retailing emerged as a star performer. Dealers who responded quickly and effectively to online inquiries gained a competitive edge. Speed and quality of engagement amplified lead conversion, proving that digital presence is more than just showcasing vehicles—it’s about delivering a superior customer experience.

Managing the revenue mix was another critical takeaway. Dealers who focused on pricing strategies and value propositions beyond inventory alone maintained profitability and relevance in their local markets. Meanwhile, some dealer groups experimented with floorplan and financing diversification, including syndications, to strengthen liquidity and reduce risk.

Finally, data-driven decision-making became indispensable. Dealers used internal tools to enhance customer delight and tapped into macroeconomic data to gauge local sentiment and trends. Coupled with a tight labor market, these insights drove investments in employee development, competitive benefits, and clear career paths—ensuring strong service and operational resilience. 

Unfortunately, volatility isn’t going away. Tariffs and trade policy will remain headline risks through at least mid-2026, keeping pricing pressure elevated as tariff-free inventory dwindles. Even if some tariffs go away, most sector-specific tariffs impacting Canada are likely to persist. The upcoming USMCA review adds another layer of uncertainty, with stricter sourcing rules and compliance costs likely pushing prices higher.

On the positive side, cumulative Bank of Canada rate cuts—275 basis points since mid-2024—should support firmer growth in 2026. New vehicle sales are projected to hit the 2.0 million mark, signaling a modest demand rebound. 

EV demand in Canada slowed sharply in 2025 after major consumer incentives were rolled back. Sales have declined an average of 36% year-over-year since February, as affordability concerns dampened enthusiasm. OEMs responded by scaling back plans for expanded EV model availability, signaling slower near-term growth. 

Despite this, the global shift toward electrification remains inevitable. Dealers should adopt a pragmatic approach: balance EV inventory with hybrids and fuel-efficient ICE models to meet current affordability-driven demand. Use data analytics to forecast regional EV uptake and avoid overstocking. Promote leasing and extended loan terms to ease upfront cost concerns for buyers.

On the service side, investing in technician training for EV maintenance now will create a competitive advantage later. The bottom line: serve today’s market while building capabilities that position your dealership as the go-to destination for EVs when adoption accelerates. 

Long-term planning starts with what dealers can control: talent management and succession planning. Treating employees as teammates and investing in their growth ensures operational strength regardless of external volatility. 

Technology also plays a pivotal role. Beyond AI, dealers must evaluate scalability and sustainability for systems that manage accounting, customer journeys, and operational workflows. These investments create a foundation for efficiency and adaptability.

Dealers should focus on core strengths—whether that’s shrewd auction buying, dealer trades, or converting lease returns into new sales—and develop strategies to turn weaknesses into differentiators. Protecting profitable areas while expanding margins in weaker segments builds best-in-class operations.

Finally, with shrinking margins on new vehicles and uncertainty around EV profitability, diversification is key. Emphasize fixed operations, used vehicle sales (especially Certified Pre-Owned), and F&I products like warranties and protection plans. These revenue streams stabilize income and reduce reliance on volatile new car sales. 

Canadian consumers proved remarkably resilient despite trade disruptions and economic headwinds. In a year of modest GDP growth (projected at 1.2%), new vehicle sales are on track to exceed 1.9 million units, driven by strong demand in the Prairies and Maritimes.

However, buyer behavior shifted significantly. Tariff-driven price hikes and elevated financing costs made affordability the top concern. Consumers gravitated toward smaller vehicles, hybrids, and used cars. Through Q3, small pickups, compact cars, and subcompact SUVs posted double-digit year-over-year gains, while large pickup sales lagged.

To manage high prices, buyers stretched loan terms and revived interest in leasing to mitigate residual value risk. The bottom line: Canadians are prioritizing affordability and flexibility, signaling a pragmatic approach in an unpredictable market. 

2025 was a year of disruption, adaptation, and resilience for Canadian auto retailers. The lessons learned—inventory discipline, digital engagement, revenue diversification, and talent investment—will remain critical as the industry navigates ongoing volatility. While challenges persist, opportunities abound for dealers who embrace agility, leverage data, and prepare for the long-term shift toward electrification. 

This piece originally appeared in Auto News Canada.