Lithia Motors Inc - Class A

Lithia Motors, being an automotive dealership group, will almost certainly be affected by the tariffs. Lithia’s dealerships import most of their new vehicle inventory from all around the world, depending on the location of the OEM’s factory for each model. As a consequence, new car MSRPs will have to rise to counteract the tax imposed on the imported value of the vehicle. This will decrease the affordability of new vehicles, likely leading to a reduction in the quantity demanded. As a further consequence, it is very probable that demand will shift to the used car market. Just as we saw in 2020 and 2021, the used car market can be very profitable for dealers when new car availability is low. Lithia’s parts and service business should also see more activity if consumers choose to put off new car purchases and instead maintain their aging vehicles. While Lithia has sold off on policy shock, today’s valuation seems to be adequate compensation for the balance of the risks and potential rewards.

Lithia Motors, being an automotive dealership group, will almost certainly be affected by the tariffs. However, today's valuation seems to be adequate compensation for the balance of the risks and potential rewards. The used car market can be very profitable for dealers when new car availability is low, and Lithia's parts and service business should see more activity if consumers choose to maintain their aging vehicles. This positions Lithia well for potential profitability despite the challenges posed by tariffs.

Lithia is one of the largest auto dealerships in the U.S. and could potentially be a net beneficiary of tariffs. While tariffs may push up new vehicle prices and decrease demand, Lithia's profitability is more reliant on selling and servicing used cars. As new vehicle sales decline, consumers may opt to keep their vehicles longer or trade down to purchase used vehicles, which would enhance Lithia's earnings potential. This positions Lithia favorably in a changing market environment.