A Promising Outlook for 2025
U.S. auto sales are set to reach their highest levels since 2019, driven by favorable economic factors such as lower interest rates and improved affordability. Analysts at Cox Automotive predict that sales of new light-duty vehicles will rise to 16.3 million units in 2025, surpassing forecasts by S&P Global Mobility and Edmunds, which expect sales around 16.2 million. This marks a notable recovery from the 15.9 million to 16 million vehicles anticipated in 2024.
Jessica Caldwell, head of insights at Edmunds, emphasized, “Consumers are still feeling the pinch, but the market has become a slightly friendlier place for car shoppers than it was at the start of the year.”
Entry-Level Vehicles Take Center Stage
A key driver of this growth is the resurgence of entry-level and more affordable vehicles. Following years of elevated prices and constrained inventories due to the pandemic, the average transaction price of new vehicles has dropped slightly. Edmunds reports that the average price in 2024 was $47,465, a modest 0.8% decrease from 2023. Despite this dip, prices remain significantly higher than pre-pandemic levels in 2019, when the average was $37,310.
Electrification Gains Momentum
The shift toward electrified vehicles continues to be a major trend. Analysts predict all-electric vehicle (EV) sales will hit a record 1.3 million units in 2024, capturing an 8% market share, up from 7.6% in 2023. While Tesla remains a market leader, its share has fallen below 50%, with competition growing from brands like Hyundai and General Motors.
“Various other models are collectively taking away share from Tesla,” noted Stephanie Valdez Streaty, Cox’s director of industry insights. She also highlighted GM’s significant market share growth of 2.7% year-over-year.
Cox forecasts that by 2025, 25% of new vehicle sales will be electrified, with over 10% being fully electric. However, federal consumer credits of up to $7,500 for EV purchases remain a critical factor. Valdez Streaty cautioned, “EV sales could be weaker if there’s an end to federal consumer credits.”
Policy Shifts and Potential Disruptions
Uncertainty around U.S. trade and regulatory policies under President-elect Donald Trump could create challenges for the automotive market. Proposed tariffs on vehicles produced in Canada and Mexico could disrupt the industry, according to Cox Automotive’s chief economist, Jonathan Smoke.
“We know that there are twists that could be coming with policy shifts,” said Smoke. However, he added, “Most of those shifts are likely to take time and could initially drive demand to be pulled forward.”
Impacts on Pricing and Profitability
While the anticipated growth in vehicle sales is encouraging, Wall Street analysts warn that increased incentives and reduced pricing power may hurt automakers’ earnings. “We continue to see signs that pricing is not sustainable,” noted Wells Fargo analyst Colin Langan, citing rising inventories and falling dealer profits per vehicle.
Although prices remain near historic highs, their slower growth is a welcome relief for buyers but presents challenges for manufacturers.
The U.S. auto market is on track for a strong recovery, with sales potentially hitting their highest levels since 2019. Factors like improving affordability and increased electrification are reshaping the industry, though challenges such as regulatory uncertainty and pricing pressures remain. As Jonathan Smoke aptly put it, “Twists in policy shifts could significantly impact demand, but opportunities remain for growth in the near term.”
