US auto dealer showrooms hum as buyers rush to get a new vehicle before President Donald Trump’s new tariffs begin, but dealers fear that good times are approaching a creaking stop.
If an automaker raises prices to hand over the cost of a fee to dealers and consumers, it could lead to fifth-largest sales, said John Crane, CEO of Hawk Auto Group, which sells domestic and international brands with 12 locations in Illinois.
His sales representatives are calling all customers by ordering and calling, suggesting that they visit the dealer immediately and buy one from the lot.
“When prices go up, sales go down,” Crane said. “There’s nothing we can say that it’s so painful, but we’ll do our best,” he said, as the average cost of cars has risen, so sales have been declining over the past eight years.
Trump is scheduled to impose a 25% tariff on vehicles built in Europe, Japan and South Korea this week. Mexican and Canadian cars and parts are also collected at 25% tariffs, causing them to collide with more than 12 car manufacturers in operations, including the traditional Detroit 3.
Additional costs vary by model and manufacturer. Michigan consultant Anderson Economic Group estimates that tariffs will add between $4,000 and $10,000 to the costs of most vehicles and about $12,000 to the costs of electric vehicles.
That additional cost will be absorbed by a combination of car manufacturers, dealers and consumers. Stephen Brown, an analyst at Fitch Ratings, said automakers will have to decide how much more the automakers will increase to pass, or whether to prune completely unemployed models, as they cannot immediately change where they will build their products.
“We can’t build new plants overnight,” he said.
The sales number suggests that the consumer is purchasing. Ford reported on Tuesday that first quarter retail sales rose 5%, with March volume 19% higher than the level in the same period last year. General Motors’ retail sales rose 15% in the first three months of the year.
Deutsche Bank analyst Edison Yu estimated that US sales rates in March had risen “substantially” from both February and March 2024.
“Currently, tariffs look official, so we expect sales in April/May to be in fact robust, as consumers buy before prices rise, but will decrease in the next half of the year as higher costs begin to flow,” Yu said.
Bank of America analyst John Murphy said increased costs due to tariffs could increase U.S. car sales.
Over the past month, stock prices at publicly traded dealers have plummeted. Oregon-based Litzia Motors has surpassed 450 and has a market capitalization of $7.8 billion, down 16% to $296.83. Competitors fell between 12% and 18%.
Due to the size of nameplate and its diverse portfolio, public dealers have the ability to absorb costs more than small businesses, said David Harkins, vice-chairman of business valuation firm Mercer Capital. Still, tariffs are “clearly negative for those involved.”
“I’m happy that I’m not on the market right now to buy a new car,” he added.
Crane said it plans to survive the potential slump in sales by delaying expansion plans at several locations and “securing extra cash” refinance loans.
However, some dealers will need to “make tough decisions” about the number of people they will hire if car sales fall, Mike Stanton, chief executive of the National Association of Automotive Dealers, said in a live stream on X on Monday.
Andrew Wright, managing partner at Vinato Dealers in Pennsylvania, said during the same live stream, he wanted to know how carmakers will respond if demand for new cars drops. He said when demand fell sharply during the Covid-19 pandemic, manufacturers ousted fewer vehicles and matched demand for demand with price rise.
“My concern is that a large supply will be in a higher customs environment. There will not be enough demand to ease that supply,” he said.
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Some dealers could offset the decline in demand through other means by pushing the Trump administration to influence the Federal Reserve to lower interest rates or pass laws that would tax deduct interest on car payments, such as mortgage interest.
“We never had an administration with this type of business-friendly insight,” said Michigan car dealer Michael Spagle during the livestream. “I think it’s probably a bit volatile to think they’re just pushing us off the economic cliff. There seems to be a lot of stuff that’s going to unfold between interest rates and taxes.”
But Steve Gates of Gates Autofamily said tariffs could be “disastrous” for businesses that grandparents started more than a century ago. Currently, there are 11 showrooms in Kentucky, Indiana and Tennessee, selling Toyota, Hyundai, Kia and Ford/Lincoln.
He said the tariffs could cause some dealers to go out of business. At current interest rates, an extra $1,000 sticker price increases your car’s payment by $20 and sells sales when pushing payments outside the budget of car shoppers.
“It kills us,” he said. “It won’t hurt us, it will kill us. If this lasts for a long time, there will be dealers who will not be able to make it or decide it’s not worth the trouble anymore.”
