Analysts Predict a Rocky Year for the Auto Market Amid Looming Tariffs

Anticipated tariffs on auto imports and the possibility of a trade war are predicted to increase costs for consumers and tighten the availability of both new and used vehicles in the United States, as per Cox Automotive’s 2025 market projection.

Cox Automotive, established in 1991, provides vehicle remarketing services and digital marketing software to automotive dealers, consumers, and various global businesses servicing the industry.

Chief Economist Jonathan Smoke emphasized that the automotive sector finds itself at an “interesting crossroads” in the first quarter of 2025.

“At the conclusion of last year, I hoped for the economy and the auto market to perform positively,” Smoke remarked. 

Smoke anticipates a “substantial shift” in global trade following President Donald Trump’s announcement of a 25 percent tariff on auto imports, which is intended to generate $100 billion in tax revenue.

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Such increases may soon disrupt the production of vehicles in North America, which could trigger a global trade war and weaken the economy, Smoke indicated.

“In essence, we are looking at a scenario of diminished production, reduced supply, and escalated prices, reminiscent of the conditions seen in 2021,” during the COVID-19 pandemic. Uncertainty may exacerbate the situation,” Smoke stated.

“We aren’t there yet, but we are on the brink of developments that could darken the outlook, and uncertainty has surged notably over the last six months.”

A potential downturn in the stock market and escalating interest rates could further dampen demand, he added.

In the short term, Smoke foresees possible production delays and disruptions impacting auto manufacturers within weeks, predicting a 30-percent reduction in production shortly after the implementation of tariffs.

“If we conducted a survey right now, I believe we would see a mixture of cautious optimism. The potential remains, but ominous clouds are beginning to gather,” Smoke remarked.

In the long run, the automotive industry may confront decreased production and deliveries, resulting in tighter supply, dwindling inventory, and average vehicle prices reaching $3,000 or more.

“While we remain uncertain about specific policy implications, it appears we are on the path toward the highest effective tariff rate since World War II,” Smoke stated.

“For the automotive market, this presents significant challenges as such tariffs could severely disrupt North American vehicle production, leading to reduced supply, increased prices, and lower production and sales.”

In addition to the tariffs, the automotive sector is expected to witness significant changes in electric vehicle-related policies later this year, with ambiguity surrounding carbon tax credits, waivers, and investments.

Challenges in the EV Market

Stephanie Valdez Streaty, the director of industry insights at Cox Automotive, acknowledged that while dealer sentiment indexes have improved compared to the previous year, mixed perceptions suggest ongoing challenges in the EV market.

“Crucially, dealers continue to regard the EV tax credit positively, noting its advantages for both dealerships and sales,” Streaty noted.

“As there are indications that the new administration might terminate the credit, dealers clearly recognize its benefits, complicating any actions the new administration might pursue.”

Cox Automotive envisions a 12 percent year-over-year increase in new EV sales in 2025, despite an 18 percent drop in sales from the fourth quarter of 2024, Streaty mentioned.

“We remain optimistic about EV sales in 2025, even in the face of numerous challenges—such as the potential elimination of federal EV tax credits and possible shifts in emission policies.”

“Potential tariffs on imported EVs and components will add complexity to EV production and sales. Additionally, despite some improvements, the public charging network still faces considerable hurdles, deterring potential buyers.”

While Tesla continues to be a dominant force in the EV market, its sales volume peaked in 2023 at around 671,000, with its market share declining since 2020 to below 50 percent, Streaty noted.

Similarly, brand consideration peaked in 2021 and has been decreasing since then, she added.

“At present, Tesla has been in the spotlight, and it’s understandable that there are questions surrounding Tesla sales and Elon Musk’s influence,” stated Streaty, who is also the company’s co-founder, CEO, and head of the Department of Government Efficiency under Trump.

Streaty credited Tesla with propelling the electric vehicle (EV) market into the mainstream and serving as a benchmark for innovation.

However, the company is currently grappling with significant challenges in maintaining its market position, in spite of Musk’s involvement with the government.

Streaty identified these challenges as increased competition, a dated product lineup, and economic factors that are impacting consumer buying power.

“We believe that without a notable strategy shift to introduce new products with broad appeal, Tesla may have reached its peak as an automaker,” Streaty stated.

Interest in purchasing a Tesla has dropped from 16 percent in 2021 to 10 percent in 2023, and then to 9 percent in 2024, she pointed out.

Tesla’s share of used listings increased by one percentage point to 40 percent in 2025, demonstrating that the rise in Tesla EV listings is partly due to greater product availability across all EVs, Streaty mentioned.

“Nonetheless, it’s clear that Elon Musk is a significant factor whose actions are influencing the brand’s reputation and sales,” she added.

“Time will tell whether Tesla can adeptly navigate this pivotal moment and discover a new growth engine. This will be the central narrative in the electric vehicle market this year.”

Tariff Uncertainty

Charlie Chesbrough, senior economist for Cox Automotive, outlined the sales outlook for new vehicles in 2025, estimating a volume between 15.6 million to 16.3 million, compared to 15.9 million in 2024.

He emphasized that the impact of tariffs on vehicle inventory remains uncertain and unpredictable.

“The news regarding tariffs hadn’t really set in by that time,” Chesbrough stated. “So dealers began 2025 believing it would be another year of modest sales increases, and they perceived market conditions to be gradually shifting.”

While growth expectations were initially optimistic for sales in 2024, “all has changed in recent weeks” given the looming tariffs, he added.

“The entire industry is anxiously awaiting April 2 to see what transpires when tariffs are scheduled to be implemented,” Chesbrough noted.

“In addition to the almost certain price increases, concerns about possible supply chain disruptions, financing challenges, and recession are also prevalent.”

Forecasting the new vehicle market for 2025 poses significant challenges owing to uncertainty surrounding the potential onset and duration of tariffs, Chesbrough remarked.

“Nonetheless, we were aware that prior to the discussions surrounding tariffs, the new vehicle market was poised for another year of 1 to 2 percent sales growth,” Chesbrough stated.

“An increasing number of consumers are citing affordability as a critical factor in choosing a vehicle, whether new or used,” he said.

“One of the primary reasons for the rise in used vehicle sales, particularly during this time of year, is tax refunds. Many consumers have historically depended on these refunds to serve as down payments on vehicle purchases, greatly benefiting the used vehicle market.”

Smoke remarked that due to the risks and uncertainties present in the broader market, compounded by the threat of tariffs and a potential trade war, a single forecast “simply isn’t sufficient.”

“The disruptions and heightened uncertainty introduced by such tariffs could result in the first quarter being the peak point for the year,” he indicated.

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