Canadian dealerships entered 2026 on the back of a strong year. In 2025, new vehicle sales reached approximately 1.9 million units -- the highest total since 2019 and the sixth-best year on record. Toyota, Hyundai, Kia, Volkswagen, and a dozen other brands posted all-time sales records.
But the headline numbers from 2025 mask a market that is already shifting underneath. Tariffs on U.S.-built vehicles are now in effect. EV sales are recovering from a brutal 2025 slump. Consumer confidence is fragile. And financing costs remain elevated, with the average monthly car payment hovering near $1,000.
This is not a doom-and-gloom forecast. It is a practical guide for GMs and dealer principals who need to understand the forces reshaping their market -- and what to do about them.
1. The Big Picture: Three Forces Colliding
Three macro forces are converging on the Canadian auto market simultaneously:
Tariffs. Canada imposed 25% tariffs on non-CUSMA-compliant U.S.-built vehicles effective April 9, 2025. These are retaliatory measures in response to U.S. tariffs on Canadian auto exports.
EV recalibration. After a 32% year-over-year decline in zero-emission vehicle sales through the first three quarters of 2025, the EV market is stabilizing -- but on different terms than the industry expected.
Consumer caution. According to a 2026 Leger survey, 62% of Canadians describe current economic conditions as poor or very poor.
TD Economics projects new vehicle sales will fall approximately 4.3% in 2026, bringing the market to roughly 1.82 million units -- down from 2025's 1.9 million.
2. Tariff Impact on Inventory and Pricing
The tariff framework is more nuanced than the "25% on everything" headlines suggest.
What the tariff actually covers
Canada's 25% surtax applies to non-CUSMA-compliant U.S.-built vehicles. For vehicles that do comply with CUSMA, the tariff applies only to the non-Canadian and non-Mexican content. Additionally, a 15% assumed value for Canadian/Mexican content is automatically excluded.
In practical terms:
- Heavily affected: Vehicles built entirely in the U.S. with minimal Canadian or Mexican content.
- Partially affected: CUSMA-compliant vehicles where the tariff only applies to the U.S.-origin content portion.
- Largely unaffected: Vehicles manufactured in Canada, Mexico, or overseas markets (Korea, Japan, Germany).
What this means for your lot
Roughly 50% of vehicles purchased in Canada come from the U.S., but the exemptions for CUSMA-compliant vehicles and Canadian-built models significantly soften the blow.
- Model-level pricing variance. Two trucks from the same OEM may carry different tariff exposure depending on where they were assembled. Know your supply chain at the VIN level.
- Inventory allocation shifts. OEMs are already reallocating production to minimize tariff exposure. Expect longer lead times on certain configurations.
- Sticker shock management. Your sales team needs to be ready to explain why a specific vehicle costs more -- and to pivot customers toward tariff-advantaged alternatives.
3. The EV Reality Check
What happened in 2025
Zero-emission vehicle sales fell sharply throughout 2025:
- Q1 2025: ZEV sales declined 23% year-over-year, with market share dropping to approximately 9%.
- Q3 2025: New ZEV registrations were down 40% year-over-year.
- Full year: An estimated 90,000+ expected EV sales were lost.
The Tesla factor cannot be overstated. In a 2025 Angus Reid poll, 71% of Canadians supported a ban on Tesla vehicles, driven by political backlash. Tesla's Canadian sales fell approximately 63.5% in 2025.
What is happening now
- Q4 2025 recovery: ZEV market share climbed back to 11.2% in Q4.
- EVAP launch: The new Electric Vehicle Affordability Program went live in February 2026, offering $5,000 for BEVs and $2,500 for PHEVs.
- Consumer interest recovering: A Rates.ca survey found 30% of Canadians are interested in EVs in 2026, with search interest up 40%.
What GMs should take away
The EV market is not dead -- it is resetting. The smart play: maintain moderate EV inventory, train your team on EVAP eligibility, and watch which non-Tesla brands absorb the share Tesla lost. GM, Hyundai, and Kia are the obvious beneficiaries.
A word of caution on EV optimism: Hybrids outsold ZEVs by more than two-to-one in Ontario in 2025. Consumer interest does not automatically translate to purchases, especially when financing rates remain elevated.
4. Used Vehicle Market Dynamics
Canadian Black Book data shows wholesale values have been softening steadily -- declining 0.20% to 0.41% per week through late 2025 and into early 2026.
However, used vehicle prices are expected to remain elevated overall due to limited inventory, tariff-driven demand shifts, and growing off-lease supply.
Key moves:
- Tighten your appraisal process. Wholesale values are softening, so overpaying on trades is a fast path to loss.
- Capitalize on off-lease inventory. Nearly-new vehicles (1-3 years old) will be in high demand.
- Market your used inventory aggressively. Your digital merchandising -- photos, descriptions, pricing transparency -- matters more in used than new.
5. What This Means for Marketing Strategy
The 2026 market demands a different marketing approach than the supply-constrained years of 2021-2023 or the rebound year of 2025.
- Lead with affordability, not discounts. Consumers are looking for reassurance that they can afford a vehicle at all. Monthly payment messaging, trade-in value emphasis, and financing options should lead your creative.
- Educate on tariff impact. A dealership that proactively explains which vehicles are and are not tariff-affected builds trust.
- Shift conquest to retention. The Bain & Company finding that a 5% increase in retention drives 25-95% profit growth is especially relevant now.
Channel allocation in 2026
- Search remains critical but AI-driven search is growing rapidly. AI referral traffic to dealer websites grew 15x year-over-year. Dealers need to think about GEO alongside SEO.
- Video content is non-negotiable. AI search engines increasingly favor dealerships with video content on inventory pages.
- Social proof matters more in uncertain times. Reviews, testimonials, and community presence become more important when consumers are hesitant.
6. OEM Co-Op in a Shifting Market
With U.S. dealership advertising spend reaching $9.2 billion in 2024, co-op reimbursement is money no dealer should leave on the table. Yet a significant percentage of co-op funds go unused because dealers find the compliance process too burdensome.
Smart dealers in 2026 will:
- Max out co-op on OEM-compliant channels to capture the reimbursement.
- Invest their own dollars on differentiated channels (local video, community sponsorships, social content) that build their dealer brand.
- Track co-op and non-co-op spend separately to understand the true ROI of each.
7. Regional Differences: BC, Ontario, and Quebec
British Columbia
- EV-friendly but incentive-disrupted. BC's CleanBC Go Electric rebate was paused mid-2025.
- ZEV adoption is strong relative to the rest of Canada, with 28% of national EV registrations.
- Tariff exposure is moderate. BC's import mix includes more Japanese and Korean brands.
Ontario
- Manufacturing heartland. Ontario-built vehicles carry natural tariff advantages.
- Hybrids dominate over EVs. Ontario's ZEV share was just 6.8% in 2025, while hybrids reached 19.7%.
- As Canada's largest province by vehicle registrations, Ontario will feel the 4.3% sales decline most acutely.
Quebec
- ZEV leader. Quebec accounts for 43-49% of all Canadian ZEV registrations, with 12.8% market share.
- Provincial incentive phase-out. Quebec's rebate program is on a phase-out schedule before 2027.
- French-language market. Effective Quebec dealership marketing requires culturally native French content.
8. How Smart Dealers Are Adapting
Move 1: Tariff transparency as a sales tool
Instead of hiding from the tariff conversation, leading dealers are getting ahead of it. OpenRoad Auto Group published a comprehensive customer FAQ page addressing tariff concerns directly.
Move 2: Financing creativity
With the Bank of Canada holding rates at 2.25% and new-vehicle interest rates ranging from 4% to 7%, affordability is the conversation.
Move 3: Used vehicle acquisition
As tariffs push new vehicle prices up, used demand rises. Dealers with proactive trade-in acquisition programs will have a structural advantage.
Move 4: Digital merchandising investment
Professional photos, detailed descriptions, transparent pricing, and video walkarounds are table stakes, not differentiators.
Move 5: Service retention focus
74% of customers who service their vehicles at the selling dealership are more likely to purchase their next vehicle from the same dealer.