Tariffs Having Minimal Impact on Dealers' Profit Growth
New-Vehicle Sales Cool Off in May 2025 After Tariff-Fueled Surge
The forecast for new-vehicle sales in May 2025 indicated a cooling off after a tariff-fueled surge in prior months. Initial estimates showed new-vehicle sales in May at around 1.47 million units, which was nearly flat compared to April and about 2.5% higher year-over-year.
The surge in new-vehicle sales in the months leading up to May 2025 was largely driven by consumers purchasing ahead of anticipated tariff increases, which pushed sales higher temporarily. This post-tariff surge in April created a strong but unsustainable spike in demand. By May, the market began to cool, reflecting the easing of the tariff-related urgency among buyers and increased affordability challenges.
Supporting this, auto sales data for June and July 2025 showed a mild increase or stabilization at slightly lower but healthy levels compared to the earlier surge, with July sales around 1.33 to 1.38 million units monthly and a seasonally adjusted annual rate (SAAR) in the range of 15.9 to 16.4 million units. These numbers suggest that after the tariff-related pull-ahead buying in April, sales levels normalized somewhat, though stayed modestly above year-ago levels.
Key Findings
- May 2025 new-vehicle sales were about 1.47 million units, flat from April, and 2.5% higher than May 2024.
- The tariff-driven surge in April 2025 pushed sales up temporarily, but May saw this momentum cool off.
- The market began adjusting post-tariff surge, with sales returning to more sustainable levels in subsequent months.
- Seasonally adjusted annualized sales rate hovered around 15.9 to 16.4 million units in that period.
- Affordability and inventory constraints also influenced the slowdown after the tariff-induced spike.
Impact of Tariffs
The impact of tariffs varies widely by manufacturer and model, with some imported models seeing cost spikes of up to 25%. As a result, tariffs are expected to raise the average vehicle production cost by $4,275. To date, many manufacturers are holding prices steady, but more noticeable price increases may begin surfacing in June and July.
Financial Indicators
- The average monthly loan payment is projected at $748, an all-time high for May.
- As a result, average trade-in equity has risen to $8,292, up $415 from last year.
- Dealers' profits, including F&I income, are expected to hit $2,502 per unit in May 2025, up $98 from last May but down $29 from April.
- The average APR stands at 6.93%, slightly lower than it was a year ago.
- The share of new-vehicle buyers with negative equity is also rising, now reaching 24.4%.
- Total aggregate retailer profit from new-vehicle sales is projected to reach $3 billion in May 2025, a 9.8% increase over last year.
Used-Vehicle Market
Used-vehicle prices are expected to put a strain on budgets. The average used-vehicle price has edged up to $29,168, a $130 year-over-year increase.
Fleet Sales
Fleet sales are projected to drop 7% year-over-year.
Consumer Spending
Consumers are expected to spend $53.8 billion in May 2025, up 7% year-over-year and the fourth-highest monthly total on record. Without adjusting for selling days, retail gains appear stronger, increasing 5% over last May. Retail sales are projected to increase 1.1% year-over-year to 1.24 million units in May 2025.
In summary, the new-vehicle sales market in May 2025 showed a return to more sustainable levels after a tariff-induced surge in April. The market is expected to face challenges due to affordability and inventory constraints, as well as potential price increases due to tariffs in the coming months.
- The tariff-induced surge in April 2025 significantly impacted the automotive industry, influencing vehicle production and business operations, as buyers rushed to purchase before anticipated tariff increases.
- As tariffs led to higher vehicle production costs, finance, particularly vehicle loans, was affected, pushing the average monthly loan payment to an all-time high in May 2025.
- Despite the cooling-off of new-vehicle sales in May, the transportation sector faced ongoing challenges, with used-vehicle prices putting a strain on consumer budgets and fleet sales projected to drop 7% year-over-year, reflecting broader trends in the industry and economy.
