Tariffs threaten to cut US auto sales by 700,000 in 2025

Before tariffs, automotive sales were poised for growth in 2025, with strong economic and auto market indicators.
Cox’s estimated costs from tariffs of an added 17% on vehicle sales potentially understate the effects the policy changes would have.
It will take time for existing inventory to sell down in the U.S., but dealers already reduced discounts on vehicles out of tariff concerns.

Cox Automotive predicts 700,000 fewer vehicles will be sold in the U.S. this year due to tariff volatility.

Recession fears, production disruptions and higher vehicle prices amid an ongoing trade war constrained the latest sales forecasts, Cox chief economist Jonathan Smoke told media Wednesday.

The Atlanta automotive analytics and software company said it anticipates 15.6 million new vehicles will be sold in the U.S. in 2025, down 4.3% from the 16.3 million it originally forecast.

According to the sentiment that Cox measures from car dealers, automotive sales were poised for growth in 2025, with strong economic and auto market indicators in the last six months. But tariffs and the potential for a full-scale global trade war are darkening forecasts, Smoke said, noting that, “uncertainty can be like a deep fog that ruins the morning commute.”

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More harm than a UAW strike

“The massive policy changes by the administration have been far more aggressive than anyone expected so far,” he said. “Worse still, the administration has communicated that they are willing to see the economy deteriorate if that is necessary to accomplish their goals.”

Cox’s estimated tariffs cost of 17% on vehicles potentially understate the effects the policy changes would have, Smoke said. Analysts have already projected new-vehicle costs could rise to a range of $1,000 to $9,000 per vehicle, with some saying layering tariffs without refunds or exemptions, known as duty drawbacks, would mean tariffs could cause more harm to auto industry than a UAW strike.

Nevertheless, the U.S. appears to be headed to the highest effective tariff rate since World War II, which would result in tighter vehicle supply and higher prices. For auto parts crossing borders multiple times as content becomes a full vehicle, sometimes as many as six times, the tariffs could compound without duty drawbacks in place.

It will take time for existing inventory to sell down in the U.S., but dealers already reduced discounts on vehicles out of tariff concerns. Had this happened in 2019, with more than 20% more inventory than we have today, tariffs wouldn’t pose nearly as much of a threat, Smoke said, though inventory levels still haven’t rebounded to pre-COVID-19 levels.

“If the tariffs go through this time, by mid-April, we expect disruption to virtually all North American vehicle production amounting to 20,000 fewer vehicles produced per day, which is about a 30% hit to production,” Smoke said.

EV headwinds, Tesla outlook

Substantial EV policy changes likely to unfold later this year could further harm sales, including but not limited to the potential loss of electric vehicle tax credits and the slackening of the National Highway Traffic Safety Administration’s Corporate Average Fuel Economy standards, Smoke said.

President Donald Trump signed an executive order, “Unleashing American Energy,” to potentially dismantle the EV incentive and related policies, including the $7,500 credit on some new electric vehicle sales.

Days’ supply of EVs declined compared with last year, Cox noted, surmising automakers did a better job of selling those cars. Yet most dealers expect EV sales to cool in the next few months and report positive feelings toward the tax credits that Trump has publicly stated he plans to revoke.

Tesla sales, meanwhile, have fallen rapidly, apparently influenced by the political fallout of Elon Musk’s role with the Trump administration and the plans to cull federal employees and slash federal budgets. The company’s perception, and competitive advantages in the EV sales space, were harmed as a result, Stephanie Valdez Streaty, Cox director of industry insights, said during the presentation.

The release of the long-anticipated Tesla Model Y Juniper refresh later in 2025 will likely be “critical” for Tesla this year, Cox senior economist Charlie Chesbrough said, as customers likely put off purchases in anticipation of the newest features.

“Without a significant change in strategy to develop new products with widespread appeal, Tesla’s high watermark as an automaker may be in the past,” Streaty said. “It’s undeniable that Elon Musk is an influential factor whose actions are impacting the brand’s image and sales. Only time will tell if Tesla can successfully navigate this critical juncture and find a new engine for growth.”

Cox’s findings remain consistent with reports early this year that noted Tesla sales were estimated to be lower year over year. While Tesla’s Model Y and Model 3 EVs remain the top-selling EVs in the U.S., both are aging models that experienced sales declines last year, even though the two vehicles accounted for more than 40% of all EVs sold last year.

Uncertain and chaotic

Trump’s back-and-forth tariff announcements rattled consumer confidence this quarter, prompting companies to warn higher prices could be on the horizon, potentially accelerating inflation and hampering economic growth.

Yet those threats appear to have driven short-term sales. Thomas King, president of the data and analytics division at J.D. Power, said robust consumer demand for new vehicles drove higher sales this month, which the firm projects will be up 13%, “enabled by consumers accelerating purchases to avoid potential tariff-related price increases.”

“While the tariff situation remains both fluid and uncertain, the prospect of tariffs is already beginning to affect the industry. In addition to the boost in March sales, anticipated increases in manufacturer and dealer discounts have not materialized, even as inventory on dealer lots rises,” King said in a statement. “Although the magnitude of these effects is currently modest, they do present a preview of potential disruption as manufacturers, dealers and consumers prepare for uncertainty in the coming weeks and months.”

J.D. Power did not adjust the seasonally adjusted annualized rate of total new-vehicle sales and said it expects16.8 million vehicles sold in 2025. The firm projects total new-vehicle sales for first quarter 2025 to reach 3,860,000 units, a 5.3% increase from last March when adjusted for selling days.

U.S. consumer confidence fell for the fourth straight month, according to the Conference Board, with the measure of Americans’ short-term expectations for income, business and the job market falling to its lowest levels in12 years.

The Conference Board, a global economic and business management research organization, said the results of its most recent iteration of its confidence index signal a potential recession in the near future.

The U.S. is not in a recession yet, or necessarily headed into one, but Smoke said optimism this spring has been shaken, and storm clouds are usually more than enough to slow the economy down.

“When costs are added, people wait for them to go away,” Smoke said. “But will they go away?”

Free Press staff writer Jamie L. LaReau contributed reporting to this article.

Jackie Charniga covers General Motors for the Free Press. Reach her at [email protected].

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