This post was originally published on Wards Auto
Dealership service departments are steeling themselves for an expected increase in their cost of parts if and when tariffs as high as 25% on imported auto parts from Canada and Mexico kick in on April 2, as proposed by the Trump Admin. Tariffs on parts imported from China have already increased to 20%.
How to deal with those cost increases is a hot topic among dealers. But the impact can vary at the brand and even the model level. No one seems sure yet how the tariffs’ impact on a dealership’s parts and service department can be dealt with.
The tariffs “will likely cause parts prices to go up,” Matthew Phillips, CEO of Car Pros Automotive Group, tells WardsAuto. “I’m not sure manufacturers will try to pinpoint which parts are subject to tariffs and which aren’t, so they would likely spread the increase across all parts.”
Matthews says he won’t be surprised to see prices for manufacturer parts increase up to 15%.
“I don’t think there is really very much we could do” about the expected price increases, he says. “Some dealers might consider increasing inventory on certain parts, but I’m not aware of anyone doing that.”
The dealers Cox Auto speaks with are “concerned because the situation is rapidly changing,” Skyler Chadwick, Cox director of product consulting, tells WardsAuto.
Increased tariffs are likely to significantly impact the automotive industry, in particular dealer groups with large wholesale businesses, he says.
“Imagine waking up one day to find your parts inventory valuation has increased by 2% to 4% on a $2-3 million inventory; the impact would be substantial,” Chadwick says.
Uneven Impact
Non-manufacturer brand parts often come from China, Car Pros’ Phillips says. Car Pros franchises are all imports, mostly volume brands but also include a BMW and Mini franchise.
“Depending on the amount of tariffs on different countries, the delta between OEM and non-OEM parts could go up, down, or stay the same,” he says.
Dealerships will likely be impacted differently depending on the franchise and even the model, says Don Monda, director of operations at The Proctor Dealerships. Proctor includes a Honda, an Acura and a Subaru franchise.
Subaru models produced in Japan likely won’t be impacted much, he says. But Honda has manufacturing plants in Mexico and Canada.
Acura and Subaru produce some models in the U.S., but even models assembled in the U.S. may contain parts from Mexico or Canada.
“Once we see and get clarification of the direct impacts on the pricing, we will look into and take in consideration some discounts for our customers,” Monda says.
In the short term, as the cost of parts increases, he expects some cost sharing adjustments between the dealer and the customer, says Brendan Harrington, president of Autobahn of Fort Worth, a dealership group with primarily premium luxury franchises.
Tariffs will also impact fixed price services such as oil changes “where parts costs really eat into our already thin margins,” he says.
How much of that cost gets passed on to the customer can vary between luxury and non-luxury brands, Harrington says, because many of his group’s luxury brands include maintenance as a standard ownership perk.
But significant service price increases are unlikely, he figures, because prices were already increased during the COVID-19 pandemic.
“The market won’t absorb more increases, whether luxury or non-luxury,” Harrington says.
Dealers, Start Your Marketing Engines
Given the expected price increases, dealerships should ensure their service schedules and processes are organized and start marketing to customers who previously declined services such as brakes and tires, Chadwick says.
“Customers should not wait to fix their cars because next month (the price of) that brake job could increase significantly,” he says.
