vehicle dealer showing young woman new car
Auto sales have fared swimmingly in the first half of the year, but Cox Automotive said it expects the tariff shoe to fall in the second half.
In its Mid-Year Review Wednesday, Cox Automotive economists made only a few minor tweaks to the forecasts they released March 26 for new and used car sales, but they reiterated the downside danger of tariffs and the continuing uncertainty around policy.
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Cox Automotive in December forecast new car sales would rise 2% 16.3 million in 2025. Its March 26 forecast had new car sales either falling 1% to 15.6 million assuming some tariffs over an extended period to rising 3% to 16.3 million if tariffs remained mostly talk. It said it now it expects sales to fall 0.6% to 15.7 million this year, unless tariffs dissipate.
Used car sales are expected to rise about 2% to 38 million this year, up from the 37.8 million for 2025 its March 26 forecast. Dealer sales are expected to rise 1% to 20.1 million this year, the same as forecast in March.
Less than half of U.S. sales are of imported cars, but Chief Economist Jonathan Smoke said the highest concentrations are for the lowest-cost and the highest-cost segments. The new tariffs collectively would add approximately $5,700 to costs of the average imported vehicle.
“Most of the vehicles priced under $30,000 would face added costs that would make them unaffordable,” Smoke said.
So far, Smoke said tariffs have “not been catastrophic” for the economy. “In fact, the second quarter will turn out to be a relatively strong quarter for the economy and the auto market,” Smoke said.
“However, it represents a point of transition,” he said. “New tariffs from expanded steel and aluminum tariffs to entirely new tariffs on auto imports and parts and reciprocal tariffs on imported goods were implemented over the last three months.”
Car prices rose from late March through April because of the demand surge caused by consumers trying to buy before vehicles would cost even more after the impact of tariffs fully landed.
“But that surging demand didn't last long and we've already seen the market slow in May and now into June,” Smoke said. “Now we face the risk of cooling demand as rates remain high and are unlikely to go lower while uncertainty for world peace, inflation, interest rates and the end game for tariffs remains incredibly high.”
Smoke referred to the first quarter GDP drop as 0.2% (which the U.S. Bureau of Economic Analysis revised Thursday to a 0.5% drop) and he said second quarter growth is likely to be about 2%. The BEA is scheduled to release its first estimate of second quarter GDP in late July.
“Buyer ability is still good, which is contingent on the labor market not deteriorating,” he said. “We are not in a recession and I still believe the most likely outcome is that we avoid having a recession.”
Meanwhile, auto loan rates are just below 25-year highs and Smoke doesn’t expect them to change much.
Captives have limited their lending, while banks and credit unions have been lending “more aggressively,” he said.
Contact Jim DuPlessis at [email protected].
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Jim DuPlessis
Jim covers economic data trends emerging for credit unions, as well as branch news and dividends.
