Car Market Update 2025 – Get Ready for Higher Prices from Tariffs

In today's video I want to give you a car market update. So the average listing price of a new vehicle is at $48,480. So I'll tell you that it's been a while since I've done a car market update and here's why. So I gave a car market update each month for about two years as the price was rising rapidly. But when the car market froze, you know as you can see, with prices neither rising or crashing, it got really boring with no developments. It was like oh it's the same as last month, same so I stopped covering it. Why bother, right? But I want to give you an update with tariffs and Trump's new tax law that are now in the mix. Now let me bring you up to speed. So you're looking at the average incentives that automakers are giving to keep sales flowing. So that's represented by that orangish line. So I remember when I was covering the market, demand was through the roof, prices were rising rapidly and average incentives dropped down to 2%. And at that time I said, you know, good luck bargaining or asking for incentives. But look at where we are right now in terms of average incentives. So we're in the 7% to 8% range which is almost back to pre-pandemic levels. Okay so the current supply sits at 73 days. But in terms of your leverage at the bargaining table, it's really going to depend on the automaker. So the reason why I'm saying that is because 73 days of inventory is just the industry average. So listen, Toyota and Lexus, they're not desperate to move inventory, you know, at this moment. So Toyota stands at 32 days supply, Lexus at 33. But if you're going for an Audi, Lincoln, Ram or Land Rover, it's going to be a different story. So you're going to have much more leverage there because they are sitting on inventory which they want to move. Now switching over to used vehicles, here are the stats. The average listing price is $25,527 and the average mileage is at $72,691. Now the used vehicle market is a different story when it comes to pricing. So the prices are well off their peaks. So this is where we were the same time in 2022, around $28,000. So this is where we're in 2023, around $27,000. And right now prices are slightly higher than they were last year in 2024. Now I want to show you this. These are global electric vehicle sales and EV sales are still growing. So when you compare up to the end of July this year compared to the end of July last year, sales grew to $1.6 million last month compared to $1.4 million the same month last year. So year over year EV sales have grown in all regions, the U.S., North America, Europe, China, and the rest of the world. But regarding EV sales in the U.S., I have to add this footnote that sales activity is going to be skewed recently because President Trump's big beautiful bill that passed discontinues the $7,500 tax credit for new used and leased EVs on September 30th. And of course people have been trying to take advantage of this tax credit before it expires. So the IRS says, and I quote this for clarification purposes, if a taxpayer acquires a vehicle by having a written binding contract in place and a payment made on or before September 30th of 2025, then the taxpayer will be entitled to claim the credit. So it doesn't require you to take delivery. Okay so right now the average price of a new EV is at $55,689. So that's before any dealer incentives or tax credits. So if you factor in the $7,500 tax credit, then that would put a new EV on par with all new passenger vehicles in general, which stands at $48,480. So just a few years back, EVs held a large premium above the average passenger vehicle, but that's clearly changed. Now let's talk about auto loans. So I want to show you this because at least to me, I mean you can see it for yourself, I find this very concerning. So for the past three years, I mean take a look at the chart. It's good to see the car prices stop shooting up, but I'm by no means saying that car prices are cheap. I'm just saying that it could be worse. So I'm just trying to be optimistic here. But you know what, as I said, vehicle prices are ridiculously high right now. Cars have gotten so expensive now that more people are opting for seven-year auto loans to decrease monthly payments. But of course, it's going to take longer to pay off the loan. So look at that black line showing how fewer people are opting for five-year auto loans over the years. So that yellowish line is the seven-year auto loan. So if you look at the chart, it was basically rare back in the days, but now it's shot up to 21.6% of vehicle financing. But again, just take a look at the chart. Consumers were hurting before the pandemic and it was going up beforehand. However, there was a spike in seven-year auto loans during the pandemic. And if you notice, it's breaking new highs in 2025. So this is not good. And of course, interest rates on auto loans shot up when the Federal Reserve started to raise interest rates to slow down inflation. But one thing to note is that the Federal Reserve is planning on cutting interest rates soon. So there's a high probability that they're going to start cutting interest rates in September. So the market odds are currently at 89%. But if they don't start cutting interest rates in September, then there's a good shot of them doing it in October. So they're going to start cutting interest rates sooner or later, but most likely sooner. And as you can see, interest rates on auto loans are correlated to the Fed Fund's interest rates. So if the Federal Reserve cuts rates, then we're going to see interest rates on auto loans go down as well. But by how much? I mean, that's going to depend on how quickly they cut and by how much they cut. But with inflation still not under control, rates are expected to be cut in a slow manner. And now, to throw this into the mix, with the passage of President Trump's big beautiful bill, people get to take a tax write-off for the interest on auto loans for cars that were made in America. So this is straight from the IRS website. This is going to apply to auto loans that originated after December 31st of 2024. So interest on auto loans for used vehicles will not qualify. Any passenger vehicle, so electric, hybrid, gasoline, they're all going to be eligible at any price as long as it's assembled in the U.S. And to find out where the vehicle is assembled, you can check the window sticker that all new vehicles are required to have. So you can also look up the vehicle identification number, the VIN, which the IRS linked right there. And it's going to tell you where the vehicle was assembled. So this tax deduction is going to apply in full to individuals with adjusted gross income of $100,000 or less or $200,000 for a couple filing jointly. Now, President Trump's tariffs are expected to put upward pressure on car prices, even the ones that are made in America, because of the auto parts. Because if you think about it, you know, the foreign-made auto parts, that's going to include engines, transmissions, powertrain parts, electrical components, etc. However, the reason why we're not seeing a spike in car prices, like at this very moment, is because automakers are eating the cost of tariffs for now, and they're not passing on the rising costs to consumers. So take a look at this. General Motors absorbed $1.1 billion of tariffs in the second quarter. So they're saying the tariffs are going to cost them $4 to $5 billion this year in 2025. But realistically speaking, how long will GM and shareholders hold out before passing on rising costs to consumers? So the reason why they don't want to pass on the cost of tariffs to consumers immediately, is because if they do, then their prices are going to go up, and the people are going to buy cars at their competitors and steal their market share. So right now, it's like a game of chicken. But sooner or later, the automakers are going to cave in. So that's your car market update. Please subscribe. I'll keep you updated on this whole situation. Thank you for the support, and wish you a very nice day. Take care.