Providing clarity amid tariff uncertainty
February 27, 2025
Element Vice President Advisory & Analytics, Steve Jastrow, offers insights and recommendations for fleet managers as they prepare for the impending tariffs.
It is hard to imagine a single greater issue preoccupying fleet managers and business leaders than the impact of the looming tariffs scheduled to be implemented within weeks. From supply chain to fuel to maintenance, it’s clear these tariffs will affect the fleet industry in several ways.
What is less certain is precisely how fleets will be impacted and what managers can do to mitigate the aftershocks. To shine a light on these questions and more, we sat down with Element Vice President Advisory & Analytics, Steve Jastrow. Steve provides invaluable insights into how the tariffs will impact the cost of vehicles, what can be done to avoid massive delays in the supply chain, and recommendations fleet managers can act on immediately.
How do the upcoming tariffs affect fleet acquisition costs, particularly for vehicles and parts sourced from Mexico or Canada?
SJ: The impact of the upcoming tariffs is twofold, and the scope largely depends on where vehicles and parts are produced. The tariffs on steel and aluminum were originally implemented in 2018 and largely negotiated away over the past six years. The updated tariff has removed the exceptions and is likely to remain permanently in place. Most U.S. manufacturers currently source these materials domestically, limiting the impact to between $500 and $3,000 per vehicle. This increase is unavoidable and should be factored into your budget planning moving forward.
The second area of concern is the proposed tariff on vehicles and parts imported from Mexico and Canada. Vehicles produced entirely in these countries—such as the popular Chevrolet Equinox made in Mexico—could see a 25% hike in cost (applied to the cost of the vehicle, not MSRP or Invoice). For vehicles made in the U.S. that rely on components like engines from Mexico, the impact varies depending on the cost of imported content. This creates uncertainties, especially as the duration of these tariffs remains unclear. My advice is to prioritize vehicles manufactured predominantly in the U.S. and ensure flexibility with multiple OEM (Original Equipment Manufacturer) partnerships. The fleet industry learned some important lessons during and after Covid, especially about the fragility of global supply chains.
You touched on the fragility of global supply chains. What steps should fleet operators take to mitigate delays?
SJ: Supply chain disruptions are likely, especially if OEMs pivot to sourcing parts outside of Mexico and Canada or move component production back to the U.S. While I don’t foresee a crisis as severe as the one we experienced during COVID-19, disruptions could still extend delivery times.
Fleet operators need to act proactively to mitigate these delays. Place vehicle orders early to get ahead of potential bottlenecks or early closure of the order banks and look to source from vehicles manufactured in the U.S. to limit tariff impacts. If your current fleet has aged due to previous supply chain delays, prioritize high-milage or high-impact vehicles for replacement to avoid extended downtime.
I also recommend diversifying OEM agreements. We learned after COVID that if you only have a relationship with one OEM and they can't meet your supply needs, it can take time to get what you need from other OEMs. By establishing relationships with multiple OEMs, you'll be better positioned to handle supply chain issues should they arise. Make sure to understand where vehicles are produced, not where an OEM is headquartered.
What impact will these tariffs have on the overall operational expenses of fleet companies, including things like fuel and maintenance?
SJ: Operational expenses will undoubtedly rise if the proposed tariffs are implemented. Maintenance costs, for instance, are expected to increase as parts sourced from Mexico or Canada become more expensive. Delays in sourcing components could arise if the OEMs look for alternative suppliers outside MX/CA, which can also lead to extended downtime for vehicles, affecting fleet utilization.
Fuel costs are another concern, as some oil imports from Canada may face tariffs. Estimates suggest fuel prices could rise by $0.10 to $0.70 per gallon. While I don’t anticipate fuel shortages, even a small increase in fuel costs can significantly impact fleet budgets over time.
Insurance premiums will likely rise as well since the higher costs of vehicles and parts will drive up repair and replacement expenses.
To partially offset these increases, optimizing preventive maintenance schedules and minimizing unscheduled downtime will be more critical than ever.
What financial strategies should fleet leaders adopt to hedge against tariff-related cost increases?
SJ: Financial preparedness is key. The first step is to work alongside your finance team to reflect tariff-related price increases in vehicle acquisition budgets. Start treating certain tariffs—like the ones on steel and aluminum—as fixed costs rather than temporary spikes.
For vehicles, do not put off replacement cycles unless absolutely necessary. A $3,000 increase per vehicle may seem steep, but that cost could pale in comparison to the expenses incurred due to vehicle downtime or reliance on rentals. Effective preventive maintenance (PM) is also essential. Keeping vehicles in peak condition reduces unscheduled repairs, which often result in increased costs and prolonged downtime.
Also, evaluate the importance of each vehicle to your business operations. Replace high-priority vehicles immediately and hold off on low-priority replacements if the tariff’s temporary nature warrants it. Continue leveraging data analytics to identify opportunities for route optimization and fuel efficiency.
What are your top three recommendations for fleet managers today regarding the coming tariffs?
- Prioritize U.S. OEM's built alternatives: With shifting tariffs and international trade policies, prioritizing vehicles manufactured predominantly in the U.S. can help organizations reduce their exposure to unexpected costs. By focusing on U.S.-built alternatives, companies can avoid tariff-related price hikes and ensure more predictable budgeting for fleet procurement. Collaborate closely with your fleet advisors to assess your current lineup and identify domestic makes and models that meet your operational needs, such as vehicle capacity, fuel efficiency, or specialized features.
- Stay on schedule with replacements: Delaying fleet replacements might seem like a cost-saving measure in the short term, but it often leads to long-term challenges (we are still digging out from the last supply chain crisis). Older vehicles are more prone to breakdowns, resulting in higher maintenance costs, unplanned repairs, and increased downtime, which impacts productivity. Additionally, aging fleets consume more fuel and may not meet newer efficiency or emissions standards, further driving up operational costs. Adhering to planned replacement cycles ensures that your fleet remains reliable, efficient, and cost-effective. Regular vehicle updates also mean access to the latest technology and safety features, enhancing overall performance and reducing operational risks.
- Stay informed: Things are changing and they're changing quickly, without a lot of warning. So, for our clients, I suggest you check in with your advisor, your account manager, and your FPS partner to find out the latest. If we don't have the answer at our fingertips, we'll figure it out and get back to you. For those navigating this on their own, we have a portal on our website where we compile the latest events along with some recommendations that anyone can access. Ultimately, staying informed empowers your team to adapt, navigate challenges, and stay prepared for whatever may come.
Successfully navigating the uncertainties created by these tariffs requires clear-eyed planning and decisive actions.
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