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Investing.com -- JP Morgan downgraded several auto marketplaces, including Openlane Inc (NYSE:KAR), CarGurus (NASDAQ:CARG), and Truecar Inc (NASDAQ:TRUE) citing significant headwinds from newly imposed 25% tariffs on imported automobiles and parts.
The firm sees prolonged supply disruptions and higher vehicle costs as negative for the overall auto retail ecosystem.
JP Morgan cut Openlane and CarGurus to Neutral from Overweight and moved TrueCar to Underweight from Neutral.
Despite strong secular trends in US Dealer-to-Dealer (D2D) recently, the off-lease recovery cycle as being potentially pushed out, the note said regarding KAR.
CARG’s downgrade was attributed to a likely slowdown in pricing tailwinds, while TRUE’s outlook was downgraded due to potential for delay in high incremental OEM programs and likely delayed adoption of new products like TC+.
The 25% tariffs on imported vehicles and parts are expected to increase average transaction prices (ATPs) by $4,000-$5,300, translating to a 9-12% rise in monthly payments.
JP Morgan warned that these tariffs could lead to immediate supply chain disruptions, with a greater near-term impact on production than on demand, resulting in reduced inventories.
The firm also expects used car prices to rise in the near term as buyers seek nearly new vehicles amid new car price inflation and supply shortages.
However, affordability concerns could weigh on used car demand in the medium term, with higher costs for parts adding $50-$100 per vehicle.
JPMorgan sees franchise dealers as the least impacted medium-term, as they benefit from resilient gross profit per unit (GPU) and increased parts and services business, with consumers holding on to cars longer. Public used car dealers, carrying 30-60 days of supply, may experience a temporary surge in gross profits as demand shifts to used vehicles.
JP Morgan remains Overweight on B2B marketplace ACV Auctions, citing cleaner exposure to secular share gains in D2D and a low base in Consumer-to-Dealer sales, which are less likely to be disrupted by the tariffs.
However, the firm raised the probability of downside scenarios for the broader auto sector and adjusted sector target multiples accordingly.