Tariffs, Transitions, and Opportunities for Automotive Industry

The Ford Rouge assembly plant in Dearborn, Mich., on Sept. 27, 2018. Carlos Osorio/AP Photo

Commentary

In January, I discussed the potential for the automotive industry to thrive under President Trump’s leadership, particularly with policies aimed at strengthening domestic manufacturing and curbing reliance on foreign imports. Now, just months later, his administration has enacted sweeping tariffs—25 percent on imported vehicles and parts—signaling a profound shift that is reverberating across the global automotive landscape.

Immediate Impacts on Original Equipment Manufacturers

These tariffs are not unexpected, but their scale and timing have jolted stakeholders. The near-term consequences are particularly acute for global original equipment manufacturers (OEMs) who depend on international supply chains to assemble vehicles for the U.S. market. The newly imposed tariffs are set to increase costs for automakers reliant on imported vehicles and components. Automakers such as Volkswagen and BMW have halted or reconsidered shipments to the U.S., citing cost and regulatory uncertainty. According to Automotive News, the European Union is already preparing retaliatory tariffs in response to President Trump’s move.

Historical Resilience and Adaptation

But even as markets react—stock indexes dipped sharply following the announcement—the broader implications are more complex. Much like the COVID-19 pandemic and the semiconductor shortage, the auto industry is once again being forced to adapt. And historically, it does. From electrification mandates to emissions compliance, the automotive sector has demonstrated an extraordinary ability to pivot under pressure.

Automakers now face a stark choice: absorb the tariff costs, pass them on to consumers, or relocate more production to U.S. soil. According to a recent Axios report, many of the top-selling vehicles in America are already built domestically. While OEMs with established U.S. facilities may find themselves in a position of relative advantage, others will need to evaluate long-term investments in manufacturing to maintain competitiveness.

States like Alabama, Tennessee, Texas, and South Carolina—already home to major assembly plants—stand to benefit if automakers increase production to bypass tariffs. As these manufacturing hubs grow, so too will demand for parts suppliers, logistics firms, and labor. In the short term, however, there will be growing pains, including supply chain realignments and the possibility of higher sticker prices for certain vehicle models.

Potential Benefits for Dealers and Domestic Production

For automotive dealers, the picture is more nuanced but not without upside. As prices for new vehicles rise, consumer behavior tends to shift. Historically, we see an uptick in used car demand as buyers seek more affordable alternatives. This shift could significantly increase gross profit margins on pre-owned vehicles—an area that has already seen growth over the past two years as inventory shortages pushed prices higher.

Additionally, dealers are likely to see expanded revenue opportunities in fixed operations. With higher costs associated with buying a new vehicle, consumers are more likely to maintain their existing vehicles longer. This trend boosts demand for maintenance, repairs, and parts—core areas of profitability for most dealerships. According to the National Automobile Dealers Association, service and parts departments already account for over 44 percent of dealership gross profit. That figure could climb even higher as customers delay purchases of new vehicles.

Dealers who position themselves to highlight their domestic inventory—vehicles unaffected by tariffs—can further differentiate themselves in a shifting marketplace. Marketing strategies that emphasize “Built in the USA” messaging may find receptive audiences, particularly as economic nationalism gains ground among certain buyer segments. Savvy dealers will double down on local outreach, digital marketing, and customer retention to solidify these gains.

President Trump’s broader objective is to reduce trade imbalances and encourage a renaissance in American manufacturing. While the path forward may be turbulent, the ultimate destination—if successful—could be a more self-reliant automotive industry that better supports domestic workers and communities. These policy changes, though controversial, could prompt innovation, regional investment, and new partnerships.

Navigating the Road Ahead

However, this period of flux also raises important strategic questions for dealers. With increased pressure on margins, shifts in inventory composition, and changing consumer behavior, some owners may decide that now is the right time to explore succession planning or exit strategies. Others may view this as an opportunity to expand, acquiring neighboring rooftops or diversifying their brand mix to hedge against volatility.

The dealership buy-sell market, which has already seen record levels of activity over the past three years, could accelerate further. Consolidation—driven by economies of scale, access to capital, and improved operational efficiency—has become a defining trend in retail automotive. Consolidation volume could continue to grow if tariffs incentivize larger groups to scale quickly in response to shifting economic dynamics.

For dealers contemplating their next move, having a plan is critical. Whether it’s an exit strategy, growth plan, or operational restructuring, working with seasoned advisors can provide clarity and help navigate uncertainty. Tax planning, real estate structuring, and valuation modeling all take on added importance in today’s environment. With the right guidance, these challenges can be turned into strategic wins.

In the end, the automotive industry has always been a story of transformation. From horse-drawn carriages to electric drivetrains, from Henry Ford’s assembly line to AI-driven logistics, the only constant is change. Tariffs are the latest chapter in this ongoing saga. For those willing to adapt, innovate, and invest wisely, the road ahead may be bumpy—but it’s far from a dead end.

From RealClearWire

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.