Dealers fear tariffs will lower profits, force job cuts

A 25 percent tariff on imported vehicles could chill new-car sales, devastate dealership profits and trigger job losses at stores, dealers and their advocates say. That prospect has U.S. auto dealers nervously awaiting a Trump administration verdict that could jolt dealership bottom lines.

Up to 2 million new-vehicle sales could be lost, and sticker prices would skyrocket if the tariffs go into effect, forecasters say. It could price many consumers out of the new-vehicle market and ultimately result in fewer vehicle choices, leading to less traffic on dealership lots — a message dealer trade groups are lobbying hard to get through to the White House.

Even as retailers brace for the worst, many are holding off on changes to operations in hopes the tariffs won't come to pass.

"It's sort of like nuclear war. It's so unimaginable and the destruction is potentially so great, that what's the point of building a bomb shelter?" Mike Jackson, CEO of AutoNation Inc., the country's largest new-car retailer, told Automotive News. "It's to that dimension, and it's hard to believe that it's actually going to happen."

Jeff Dyke, executive vice president of operations for Sonic Automotive, the country's fifth-largest dealership group, calls the tariff threat troublesome. Up to 85 percent of Sonic's 100-plus stores sell luxury- or import-brand vehicles.

"Hopefully cooler heads will prevail," Dyke told Automotive News. "There could be some short-term pain, but hopefully that does not happen and we're able to move forward without it."

Last week, Moody's Investors Service said a 25 percent tariff would hurt almost all of the U.S. auto industry, including dealerships.

"Dealers heavily weighted toward imports ... will suffer significantly," Moody's Senior Vice President Bruce Clark wrote in a research note. "These companies have minimal U.S.-produced vehicle penetration to offset reduced sales from price increases on imported vehicles."

Among publicly held retailers, Penske Automotive Group, given its large presence in Europe, and Lithia Motors, which has a high percentage of domestic-brand vehicle sales, would suffer least, Clark said. Penske and Lithia declined to comment.

Chatter about possible tariffs has escalated in recent weeks, as President Donald Trump tweets and as automakers respond vocally.

Toyota, for instance, said it would cost an extra $1,800 to manufacture a Camry with a 25 percent tariff — even though it's U.S.-built — and it likely would have to pass the cost to consumers.

LMC Automotive forecasts up to 2 million new-vehicle sales would be lost. A May study by Trade Partnership Worldwide found the price of a $30,000 imported vehicle would rise by $6,400.

The U.S. Department of Commerce in May launched an investigation into whether the import of automobiles and parts threatens national security. New tariffs on imported aluminum and steel were implemented after a similar probe.

Dealer trade associations are among those issuing written statements for the investigation. Association representatives want to testify at public hearings slated for July 19-20. In comments submitted to the Commerce Department, Jaguar Land Rover said the tariffs would greatly reduce more than $1.3 billion that its dealers plan to spend during the next five years on facility upgrades.

"This would be a real punch in the gut for the auto sector, employees and consumers," Cody Lusk, CEO of the American International Automobile Dealers Association, told Automotive News.

Auto import tariffs would be devastating to the auto industry and could jeopardize the 9,600 import-brand dealerships the association represents and the 577,000 employees at those stores, Lusk said.

The association is among more than 270 organizations and businesses supporting a bill introduced by a group of U.S. senators to require congressional approval before proposed tariffs in the interest of national security could be implemented.

The National Automobile Dealers Association has ramped up meetings with members of Congress and has launched a study on the economic impact that tariffs would have on dealerships and sales.

"The president is rightfully concerned about trade imbalances and manufacturing jobs in the United States," NADA CEO Peter Welch said in a statement to Automotive News. "But automobile production today is so deeply integrated across international boundaries that virtually all cars and trucks, domestic and international, have foreign components even if they are assembled in the United States.

"And a tariff, depending on how it is implemented, could raise prices dramatically for customers and threaten auto industry jobs at home," he said. "We look forward to working with the administration to find solutions that don't dramatically increase prices or limit choices for our customers."

If the lobbying doesn't work, dealers are considering how to adjust.

Some of the publicly traded retailers such as Sonic Automotive and AutoNation say their diversifying businesses, including growing used-car sales, would somewhat shoulder the predicted dip in new-car sales that experts believe would follow the tariffs.

"We're already emphasizing pre-owned dramatically and will continue doing that," Jackson said. "We just hope that if the threats of this discussion lead to eliminations of tariffs like the Germans have proposed between the United States and Europe, I think that would be a great result and a great victory. If it takes brinkmanship to get there, then so be it."

Sonic would find a way to adjust, Dyke said. Selling off the group's European luxury-brand and other import-brand stores is not an option.

"Ultimately what this means is the consumer's going to get hit paying more money for vehicles," Dyke said. "I can assure you the dealers aren't going to absorb a 15, 20, 25 percent increase in costs. It'll erode 100 percent of their profitability."

Jeff Aiosa, owner of Mercedes-Benz dealership Carriage House of New London, Conn., is taking a wait-and-see approach rather than planning any immediate defensive moves. Up to 75 percent of Aiosa's vehicle sales could be subject to an import auto tariff.

"It's a little premature to start stockpiling inventory of cars and parts, because I just don't think that this is going to happen in the near future," Aiosa told Automotive News.

But if it does come to pass, it could have a chilling effect on new-car sales because it would effectively raise prices. "It's a car tax," Aiosa said.

David Rosenberg, CEO of Prime Automotive Group, the nation's 13th-largest dealership group, is gobsmacked that he had to petition Congress to stop a Republican administration from imposing tariffs that will hurt his dealership group, which includes an array of German luxury brands across its 57 stores.

A tariff on German luxury cars makes little sense, Rosenberg said, because of a lack of alternatives.

"It would be different if there were a lot of competitors for BMW, Mercedes-Benz, Audi or Porsche. But I can't see this driving people back to Cadillac or Lincoln. They're not even being considered by people considering German luxury cars," Rosenberg said. "Ultimately, the only people who are hurt by this are consumers."

Hannah Lutz, Larry P. Vellequette, Urvaksh Karkaria, Jackie Charniga and Eric Kulisch contributed to this report.