3 Stocks to Watch From the Thriving Auto Retail Industry Despite High Tariffs

Lavina Shahu

Thu, Apr 24, 2025, 7:25 AM 7 min read

Despite a turbulent tariff environment that engulfs the auto sector, prospects of the Zacks Auto Retail and Wholesale industry remain robust on the back of a diversified product mix and multiple income streams. Players like Lithia Motors, Inc. LAD, AutoNation, Inc. AN and Group 1 Automotive, Inc. GPI continue to expandtheir market share and strengthen their offerings to reach a broader audience, thereby improving profitability.

Industry Overview

The performance of the automotive sector relies on its retail and wholesale networks. Companies in the Zacks Auto Retail and Wholesale Sales industry handle various operations through dealerships and retail chains. These include selling new and used vehicles, light trucks and auto parts, providing repair and maintenance services and facilitating vehicle financing. As a consumer cyclical industry, its success is closely tied to economic conditions and business cycles. When disposable income is high, consumers and businesses are more likely to invest in big-ticket items, whereas tighter budgets lead to cuts in discretionary spending. Notably, the coronavirus pandemic has significantly reshaped the industry, driving a greater focus on e-commerce.

Factors Influencing Industry Prospects

Multiple Income Streams Reduce Risk: The auto retailers have diversified product mix and multiple income streams, which reduce their risk profile and position them for long-term growth. These companies generate income from businesses, including used and new vehicle retail, finance, insurance, as well as automotive repair and maintenance. This ensures stability and consistent revenue generation, mitigating the impact of market fluctuations and economic downturns.

Strategic Acquisitions to Expand Market Share: Auto dealers are expanding into new markets through strategic acquisitions, which are helping them grow their market share and strengthen their offerings. Additionally, investing in digital platforms aligns with shifting consumer preferences toward online transactions. This digital strategy is enabling dealers to reach a broader audience, ultimately driving higher profitability and expanding their market footprint.

Higher Tariff to Make Vehicles Expensive: U.S. President Donald Trump will impose a 25% tariff on imported vehicles and auto parts. This move will lead to increased manufacturing costs for carmakers and potential disruptions in the supply chain. Per Goldman Sachs, the 25% tariff on imported vehicles could increase car prices by anywhere from $5,000 to $15,000, depending on the specific make and model. As a result, new vehicle prices are likely to rise, prompting more consumers to consider used vehicles instead. The increased demand for used vehicles may also drive up their prices, which may discourage used-vehicle buyers. Rising vehicle prices are likely to take a hit on the top-line growth of new and used vehicle retailers.

Zacks Industry Rank Indicates Bright Near-Term Prospects

The Zacks Auto Retail & Wholesale industry is part of the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #46, which places it in the top 19% of around 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are optimistic about this group’s earnings growth potential.

We will present a few stocks that you might consider adding to your watchlist. Before that, let’s discuss the industry’s recent stock market performance and valuation picture.

Industry Tops Sector and the S&P 500

The Zacks Auto Retail & Whole Sales industry has outperformed the Zacks S&P 500 composite as well as the Auto, Tires and Truck sector over the past year. The industry has returned 8.8% over this period compared with the S&P 500’s growth of 5.2% and the sector's decline of 9.8%.