By Teresa Rivas

Shares of auto-parts retailers are jumping even as car manufacturers tumble in response to President Donald Trump's unexpectedly severe 25% tariffs on foreign autos.

The difference? It is a lot easier for Americans to accept a price increase on $50 brake pads than on a $50,000 brand-new car.

Strategists of all stripes have warned that tariffs are inflationary because they increase the cost of imported goods, leading many companies to pass the additional expense on to consumers. The auto industry is no different.

Even before tariffs dominated the headlines, the price of a new car hovered above $48,000, just a sliver below the 2022 all-time high, when pandemic-related costs led sticker prices to skyrocket. The latest 25% levies look poised to raise the cost of a new car even higher; numbers from J.P. Morgan point to an increase of roughly $5,000 per vehicle sold.

The obvious solution is for consumers to hang onto their current cars as long as possible. That doesn't seem like a hard sell, particularly given concerns that tariffs could more broadly nudge the U.S. toward an economic slowdown. That could affect the job market, just as Trump cuts employment in the federal government.

The average vehicle in the U.S. is 12 years old, meaning that consumers unwilling to spend $50,000 on a new car will still likely have to spend on maintenance. That should benefit auto parts retailers such as AutoZone, a factor Barron's highlighted when we profiled the stock last week.

Shares of AutoZone, along with peers O'Reilly Automotive and Advance Auto Parts, were all rising in Thursday trading, even as the broader market was in the red. AutoZone and O'Reilly were both up around 3%, while Advance Auto -- which has long underperformed due to operational issues -- had gained nearly 9%. The S&P 500 was down 0.1%, while General Motors and Ford Motor were down around 6% and 3%, respectively.

Auto parts are subject to the tariffs, meaning the costs of components will rise as well. However, as Parnassus Investments portfolio manager Andrew Choi told Barron's, the average item at an AutoZone comes out to around $30.

Even if auto parts retailers pass on their higher costs to the tune of 10% or 30% price hikes, that would be relatively manageable for consumers paying $30 for a component. Any commensurate increase for a new car would amount to thousands of dollars. Just 2% of $50,000 comes out to $1,000.

On a conference call held to discuss its latest financial results this month AutoZone executives said they expect the company to maintain its robust margins even after tariffs. Chief Financial Officer Jamere Jackson said he expected that "the entire industry will behave in a rational way as our historical experience has shown."

That could mean companies won't undercut one another on price to boost sales.

Of course, if the recent pace of policy changes has demonstrated anything, it is that investors can't be sure of what comes next. Today's bullishness around auto parts retailers could vanish with the next tariff turn.

The good news is that tariffs are hardly the only reason to like AutoZone and O'Reilly. The pair are typically all-weather stocks that don't get dinged by downturns, given that people repair rather than replace their cars during a recession.

They have outperformed during the recent bull market as well. In today's wild market, they may be as close to a smooth ride as investors can find.

Write to Teresa Rivas at teresa.rivas@barrons.com

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March 27, 2025 14:57 ET (18:57 GMT)

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