everything translates. Whatever you do to a car in Sim mode will carry over to Arcade mode. The arcade mode car screens show the same for all cars of a given make and model. So if the arcade Civic is 214hp in the arcade mode at 1000kg (I'm making these numbers up BTW) when you bring your SIM civic with 400hp and 800kg the screens in arcade will show the 214hp/1000kg but when you drive your SIM car you will see it is what you had in SIM mode.
Only two problems. You can't adjust the SIM car in arcade mode (well single race mode) so if you want to tune the car to the circuit you have to go back to the SIM mode, find the circuit (or any circuit for that matter) and tune the car then go back to arcade mode and load the car back in.
If youa re just running laps in free run mode you can tune and adjust whatever you like though.
9 times out of 10 if you load a tweaked out SIm car into an arcade single race you will meet the top end s-class cars (the GT-one, r390 and 787b). Even if the SIm car your brought in was say a fully tuned Toyota Vitz, you'll still be racing s-class arcades.