I've yet to hear a compelling argument against all cars being available to drive in arcade mode. What's the point of modelling all these cars and including them in the game if the majority of people don't ever get to drive them, at all?
So that they'll play the game more? Here's my idea: do what GT4 did, and essentially "unlock" cars for use in arcade mode as you obtain them in the campaign. Or, alternatively, I'd just allow for more cars to be used in arcade mode, as we can see multiple tiers of cars available in arcade mode in GT3, rather than the relatively austere amount in GT Sport. Personally, I'd go for the GT3 approach, and I'd have multiple cars from each class, though certainly not all of them. So for example, if we were discussing Gr.1, I'd have a modern LMP1 like the TS050, but also a Gr.1-spec VGT like the Hyundai N2025, and then also an older Group C racer like the Mazda 787B. For Gr.B, I'd have an actual Group B car, as well as one of the made-for-game rally cars made to fit into that group. Then, for Gr.2, I'd have both a newer Super GT500 car from 2016, as well as one from the older 2008 season, and then something like a modern DTM racer if those are added to Gr.2 as well. Something like that, yeah.
I'd also like it if arcade mode had its own campaign of sorts, like in GT3. It's also too bad that clearing every course on the hardest difficulty in GT Sport's arcade mode does nothing, at least as far as I can tell.
EDIT: So instead of Group A/B/C/D/E/F like in GT3, I'd have some N-Series groups, then each of the major racing groups, which would ideally include Gr.4/Gr.3/Gr.2/Gr.1/Gr.B, but also any new groups that'd be potentially added, like if PD wanted to add a group for vintage prototypes such as the Ferrari 330 P4. To further incentivize players to play the arcade mode, you'd win a car for winning all races in a given group that goes to your campaign mode's garage - one for clearing all races in a group on normal, and another for doing so on hard. I also don't think we need a Time Attack mode in GT7, as I think the Circuit Experience mode is pretty much a perfect replacement, and ideally should return.
EDIT2: Nevermind, apparently the Group A/B/C/D/E/F thing from GT3 applies to how tracks are separated, not the cars in arcade mode. But in that GT3's case, there was a single class for race cars, one for rally cars, and then three various tiers of road cars, being organized as C/B/A/S/R. Perhaps I'd replace these with N200/N400/N600/Gr.3/Gr.B, with a healthy variety of cars in each, though it'd still just be a sampler. You could pick any class, and then, if you beat a race at every course layout for each difficulty, you get a prize car in your garage. So one for easy, one for medium, and one for hard. Not unlike how with some iterations of the license tests, you'd win one car for getting all bronzes, silvers, and/or golds.
EDIT3: But generally, I think arcade mode should just be a sampler of the game that's meant to be a quick way to pick up and play the game, rather than something with a lot of content. I would personally be fine if GT7's arcade mode was similar to that in GT Sport, though I really would like there to be incentives for clearing all layouts on the hardest difficulty, whether it's a prize car for each difficulty cleared, a piece of racing gear, a special paint or part you could then buy in GT Auto, or something else entirely, like a special skin if they added a skin system in addition to the updated livery editor.