Tariffs hammered the auto retail industry in 2025. In the US, the effective tariff rate reached more than 15% by year’s end, and trade directives continued to shift without much warning. Nothing currently suggests that the pace is even close to slowing down. Now, as we look to 2026, it appears that sharper swings, tighter cost cycles, and increased pressure will be placed on every assumption dealers use to run their stores.
I talk to operators and industry leaders across the country daily. They all tell me the same thing: they feel these pressures long before their customers do. Part costs jump overnight, labor rates climb, contracts get more expensive to support and none of it waits for an OEM bulletin or a policy announcement.
A Dealership’s Cost Base Now Sits on Unstable Ground
The biggest misconception about tariffs is that they hit only the finished goods that cross borders. When in reality, they hit everything around the dealership. Replacement parts, subcomponents, electronics, glass and tires all sit inside a global supply chain. Many of those items come from regions that already saw sharp tariff swings in 2025. Analysts expect more movement this year as trade partners reposition and the US tests the limits of its authority under the International Emergency Economic Powers Act. The Supreme Court heard arguments last fall on whether the president can impose baseline tariffs of 10% on imports. That debate alone shows how unsettled the environment looks.
The GPW Actuarial analysis presented at the F&I Reinsurance and Product Conference showed that a 25% tariff on imported parts would raise parts costs by 10 to 15%. That shift pushes VSC loss costs up by 5 to 8%. Those numbers do not describe a hypothetical future. They describe the exposure dealers live with right now. Repair order cost inflation already sits on top of that pressure and keeps moving.
Labor trends add a second layer of strain. Technician shortages grow each year and many stores struggle to hire and retain talent. TechForce data shows the industry needs more than 470,000 new technicians by 2028. General car repair costs have also increased more than 33% within the past four years (from 2021 to 2025), which roughly equates to an average annual increase of around 7.4% when compounded. That level of inflation hits recon first and tightens every move a store makes with used inventory.
Affordability Strain Gives Dealers Even Less Room to Maneuver
Dealers rarely talk about tariffs without talking about payments. They cannot separate them. Customers now operate inside the tightest affordability cycle in more than a decade. Average monthly payments remain near record highs and almost twenty percent of buyers carry payments above $1,000. Negative equity climbed again in 2025 with more than one in four new-vehicle trade-ins arriving upside down and an average gap of more than $6,700.
Tariff shocks feed directly into that environment. Higher parts costs influence recon and service. Higher recon costs influence pricing. Higher pricing pushes customers deeper into negative equity. That cycle tightens every decision a dealer makes because the margin for error shrinks.
Tariff Whiplash Creates a New Kind of Margin Instability
In earlier cycles, dealers handled volatility by stretching or tightening their planning windows. They adjusted forecasts or pulled back on expenses. They thought about volatility as a wave they could ride out. Tariff-driven pressure does not follow that pattern.
Tariff cycles hit each department at different speeds. Parts cost increases land within days. Recon inflation shows up within weeks. Service capacity tightens as technicians juggle pricier jobs. Loss-cost trends rise as contracts run off. Pricing resistance grows on the sales floor as customers push back on monthly payments. These pressures stack and rarely move together. They blow apart budgets because they ignore planning timelines.
Why 2026 Demands a Different Operating Rhythm
Dealers cannot run 2026 the way they ran 2019, 2021 or 2024. The environment shifts too fast and the cost structure carries too much exposure. The stores that navigate it best already operate differently.
- They shorten planning cycles: They do not wait for monthly closes, instead they adjust every week. They track parts costs, recon trends and inventory turns in real time. This way, they can catch shifts early because it’s the waiting that cost too much.
- They build scenarios with real math: They model different tariff paths with real numbers, not assumptions. They’ll look at what a 5% parts spike means for recon, what a 10% spike means for contract loss ratios and what a 15% spike means for inventory strategy. There is no guessing, they quantify.
- They tighten the link between service, sales and F&I: Tariffs touch each department in different ways, but the financial impact sits on one P&L. Stores that move as one unit adapt faster than stores that operate in silos.
- They use real-time data as a decision engine, not a report card: Dealers cannot rely on lagging reports in a tariff-heavy environment. They need visibility into what changes today, not what changed last month. When I sit with operators who built this capability, they always say the same thing, they feel in front of the volatility instead of behind it.
The Market Will Stay Unpredictable, but Dealer Strategy Cannot
Volatility will not ease in 2026. Tariffs will keep moving. Parts and labor will keep tightening margins. Affordability pressure will keep shaping customer choices. Dealers cannot control those forces but they can control how they operate within them.
The next era of auto retail won’t be a race to predict tariff swings but a commitment to run the store with clarity in the face of uncertainty.
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