Did high prices, high interest rates or tariff uncertainty scare you off from buying a new car this year? You’re in good company.
Americans aren’t racing out to buy new cars, with the steady drumbeat of increasing pricesstarting to wear on would-be shoppers.
Sales of new cars slumped in October and in November, according to Cox Automotive, which forecast a nearly 9 percent drop in retail sales last month.
Analysts still expect to end the year with more new-car sales than last year, but it won’t be the remarkable recovery that some had predicted. This year was meant to be a ray of light after years of constrained supply amid the coronavirus pandemic that pinched shoppers and dealerships.
“We thought 2025 would be the first full year back after pandemic [supply issues], and instead we got hit with tariffs and affordability issues and very high interest rates,” said Joseph Yoon, consumer insights analyst at the automotive research site Edmunds.
Instead, the market is somewhat muted. And even as automakers gear up for December sales events, it’s possible that the factors weighing on consumers will lead to a muffled year-end.
The ‘unstoppable climb’ of car prices
One of the key reasons Americans aren’t rushing to buy new vehicles is the price tag. The average price of a new car surpassed a record $50,000 in September, according to Kelley Blue Book, a number that many shoppers find unpalatable as cost increases in other areas of lifepress in.
The “unstoppable climb of prices for new cars,” Yoon said, is probably the most notable reason that sales are waning.
Much of the country is not public transportation-friendly, making cars a necessity for many. That need and higher prices for new cars drive people to shop for used cars, where price tags for almost-new cars can be significantly below a dealership’s new-car sticker. Even that market is facing challenges, however, because the pandemic-induced supply crunch means there aren’t as many of those almost-new cars on lots.
Sales at motor vehicle and parts dealerships fell 1.6 percent between September and October, according to retail sales data released Tuesday.
The persistence of high interest rates
The majority of new-car buyers take out loans to finance their purchases, and the average monthly payment rose to an all-time high in October: $766. That number has risen as interest rates remain stubbornly high and shoppers opt for pricier vehicles such as trucks and SUVs.
High interest rates have plagued consumers all year, and though the Federal Reserve has cut rates three timesin recent months, interest rates on auto loans have fallen only slightly. Buyers are taking out longer and longer loans, sometimes stretching to six or seven years, to keep the monthly payment affordable, said Erin Keating, an executive analyst at Cox Automotive.
Inflation rates on car prices have been relatively steady, she said, but interest rates are really making things challenging for consumers. The average rate for a five-year loan was about 7.6 percent as of August, up from 5 percent in 2020.
And the auto industry is seeing the same split that is noticeable in the rest of the economy — wealthier consumers are still spending money, while many low- and middle-income families are cutting back.
“The new-vehicle market has been and will likely always continue to be held up by the more-well-heeled consumers,” Keating said.
The expiration of EV tax credits
Earlier this year, consumers rushed to buy electric vehicles before a $7,500 federal tax credit ended in September. Sales of the vehicles hit an all-time high in the third quarter, according to Cox Automotive, with a jump of nearly 30 percent from a year earlier.
With the tax credit gone, as part of President Donald Trump’s massive tax and spending bill, which passed in the summer, sales of electric cars are falling. Sales of Ford’s electric vehicles plunged by 60 percent in November, though sales of hybrids increased.
Trump proposed a rule change this month that could further erode support for cars fueled by greener energy sources. Under the proposed change, new cars sold in the U.S. would need to average only 34.5 miles per gallon, lower than the Biden-era rule of 50 mpg.
The most popular cars in the U.S. haven’t shifted much in recent times, even with the proliferation of electric vehicles. The Ford F-series is still the nation’s most popular purchase.
The uncertainty of tariffs
Another probable reason that car sales are slumping is the uncertainty over tariffs. The Trump administration has imposed, rolled back and reimposed tariffs on myriad countries’ imports and on specific products this year, leaving consumers unsure what to buy when.
The U.S. has imposed a 25 percent tariff on imported vehicles and parts, though there are many exceptions. Industry analysts say that many people made their car purchases late last year and earlier this year in anticipation of price increases because of tariffs.
Tariffs are already eating into automakers’ bottom lines. Automakers, worried about alienating consumers, are largely shouldering the costs of tariffs themselves, rather than passing them along. But shoppers are being hit by tariff-related price increases in other areas, cutting into their budgets.
It is unclear how long automakers can keep eating the costs — it might cause the companies to manage their inventories more judiciously.
“There may be more dealer discounting, but I’d be surprised to see automakers get aggressive in December,” Keating said.
The post 2025 was supposed to be the year you bought a car appeared first on Washington Post.
