October 17, 2018

What is the Impact of Tariffs on Automobile Dealerships?

There has been a lot of discussion in the press recently about the various tariffs the President has imposed on China. They have extended across a range of products to balance the trade deficit and act as a catalyst to create a long-term trade agreement. While many of these tariffs are aimed at intellectual property related products, the 25% tariff on steel and 10% tariff on aluminum, are of greatest concern to the automotive industry. The flood of news stories has left many dealerships wondering if these changes will adversely impact their business in new car, used car, part sales, and maintenance services. According to the Cox Automotive Dealer Sentiment Index Q3, a majority of independent auto dealers expect the price of used cars to increase as a result of the changes. There were several other interesting insights revealed including the impact on domestic and imported vehicle sales. To help our clients and others understand the latest findings and how it may impact their business, Wilson Lewis has provided a summary of key survey findings below.

Key Survey Findings  

• Expected Impact on Business – The survey sought to uncover what the tariffs expected impact would be on independent and franchise automobile dealerships. According to the survey, 57% of independent dealerships expect the tariffs to have no impact on business, 32% expect a negative impact and 11% expect a positive impact. For franchise dealerships, 56% expect to experience a negative impact, 9% expect a positive impact and 35% expect no impact. It appears that independent auto dealerships are expecting far less of an impact than others.
• Positive Impact on Business – There were also inquiries made about, what, if any, positive impacts the tariffs could have on various aspects of the business. According to the survey, 48% of independent dealers expect more traffic for used vehicles, 28% believe it will make the market stronger, 32% indicated there will be an increased margin on used cars, 11% indicated there will be an increased margin on new car sales and 7% believe there will be an increased margin on vehicle repairs. The responses from franchise dealers were roughly the same with 44% expecting to see an increased margin on domestic new car sales.
• Concerns for Imported Vehicles and Part Sales – There was also discovery conducted about what impact the tariff would have on imported vehicles and parts. According to the survey, 70% of independent dealers expect to see higher prices on used vehicles as the market adjusts, 51% expect to see higher prices on imported vehicles, 38% expect to see higher prices on new vehicles, 26% expect a higher price on domestic vehicles and only 5% of survey respondents expect to see no impact from the new tariffs.

Additional Insights

There appears to be a consensus among thought leaders in certain areas. According to the Center for Automotive Research, the tariff will result in an expected average increase of $6,875 in the price of new imported cars and a $2,270 increase for automobiles assembled domestically. Due to the increase in the cost of new automobiles, it’s also expected there will be an increase in the cost of used cars as demand increases. They also provided interesting statistics on the number of dealership jobs which will be impacted as well.

Contact Us

The expected impact of the steel and aluminum tariffs on China will certainly influence automobile production prices and dealerships. Independent dealerships should consider how these changes will impact their business and make needed adjustments to capture the opportunity. If you have questions about this research or need assistance with an accounting or tax issue, Wilson Lewis can help! For additional information please call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.