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In this episode of ‘The Straight Shift’, LeeAnn Shattuck discusses the automotive market predictions for 2025, addressing common misconceptions fueled by clickbait media. She analyzes the current state of new and used car sales, the impact of profit margins on affordability, and the financial tools available for car buyers. The conversation also highlights market trends, potential discounts on specific vehicles, and the anticipated rise of electric vehicles. LeeAnn concludes with insights on how to navigate the car buying process effectively in the coming year.
Takeaways
- 2025 is expected to be a good year for car buyers.
- New car sales are slightly up, indicating market stability.
- Profit margins for dealerships and automakers are declining.
- Financial incentives will likely improve for car buyers in 2025.
- Electric vehicle sales are projected to rise significantly in 2025.
- The automotive industry is cautiously optimistic about the future.
- Understanding market trends can empower better car buying decisions.
Resources:
www.TheCarChick.com
www.CarBuyingCourse.com
Hey everyone, welcome back to “The Straight Shift”. Last week, I started to address a frequently asked question this time of year. What is going to happen in the automotive industry for 2025? Will 2025 be a good year to buy cars or will it not? A lot of my clients ask this when they’re trying to decide if they should make a move now or if they should wait and kind of see what happens as we get further into the year.
I began my predictions with a discussion about the Honda Nissan potential merger that they announced at the end of the year, and I talked through that. So today in part two, I want to focus on the car market itself, specifically in the U.S. How it might affect you if you’re planning to buy a car in the coming year. Will 2025 be a good year to buy a car?
Is the market crashing and burning like everybody on YouTube is saying? Well, let’s once again gaze into our somewhat foggy crystal ball and see what we see.
You can’t search for anything on YouTube related to the car market right now without seeing all these clickbait titles using words like crashing and collapsing when talking about the car market for 2025. They’re saying things like dealers can’t sell cars, inventories backing up on the lots, they’re dumping cars, dealers are selling cars at $10,000, $15,000, $20,000 off.
They’re going to go bankrupt. They’re going to go out of business. This is mostly bullshit, people. It is clickbait. And I am not dissing the YouTubers. I understand the clickbait game. I just personally choose not to participate in it. And most YouTubers are not journalists. They do a really good job for the most part. And some of them actually do have data driven content despite their clickbaity titles. And I do respect them for that.
So I’m not dissing the YouTubers, but I do hate clickbait titles and I think it really creates a lot of confusion in the marketplace, especially when people just breeze by those titles and they don’t necessarily dig into the content to see what the YouTubers are actually saying. And is what they’re saying backed up by actual data or are they just kind of given the whole doom and gloom just to get views? There’s a little of both out there.
So why don’t we look at actual data coming out of the retail automotive industry. And this data is as of December of 2024 because the full end of year data has not been finalized yet as of me recording this podcast here in early 2025. But we do expect that data to be released pretty soon. And I use sources like Cox Automotive and industry experts, the economists inside the automotive industry
and various other data sources with automotive news and their data bank. So these are actual data points, actual numbers coming outside of the automotive industry, not from outside sources. So overall new car sales in the United States actually didn’t do too bad. They are up slightly over 2023, only about a two and a half percent increase, maybe a little bit less depending on how the full numbers shake out. But
Q4 really saw a strong uptick in new car sales. Part of that is due to interest rates dropping and the capital finance companies being able to offer low and sometimes even 0 % APRs. That has a huge impact on the affordability of cars and motivates people to buy. Lots of people took advantage of the deep discounts on electric vehicles thanks to the remaining federal tax credits.
Plus a lot of people decided to just hurry up and make that purchase of a new car before the end of the year, both to take advantage of the holiday sales and those great incentives, and because people are concerned about what’s gonna happen when we get into the new year and the new administration gets into the White House and what havoc they might wreak with their threats with tariffs and other things within the market. We just don’t know. So a lot of people said, eh, I’m gonna hedge my bets and just buy now.
And that contributed to a strong fourth quarter for new car sales. They’re expected, the final numbers for 2024 for new car sales are expected to come in close to 16 million units. And that is the best results that we have seen since 2019, pre-pandemic. And it’s better what industry experts expected when they were forecasting 2024. Used car sales
That data is a little bit harder to track because you just have so many small independent dealers out there. So we look at what’s called the Mannheim index. Mannheim is the world’s largest wholesale auction house in the automotive industry. It’s where dealers buy used cars and they track the used car data as best they can. And used car sales are probably going to close at close to 20 million units. And that’s about a 3 % increase over 2023.
So why are people screaming that the car market is crashing if both new and used car sales are actually up? Well, for one, sales may be up, but profits are down, both for dealerships and for the automakers. And there are several reasons for this. Profits peaked in 2021 despite the low new vehicle production because they were making record profits per unit
sold. They couldn’t make money on volume, so they maximized their profits on the units that they sold. And the industry was never going to be able to sustain that. Nor should they, because a lot of those profits were at the expense of the consumer, you taking advantage of the pure supply side of the industry at the time. So now that’s kind of coming back around to bite them in the butt. In many cases, the manufacturers have priced themselves out of the market.
As I talked a few weeks ago in the episode about why there are no more cheap cars, new car prices rose at 30 % outpacing inflation during the pandemic. And this wasn’t just pandemic blame. It wasn’t just due to rising manufacturing costs and transportation costs, but also because the manufacturers actively chose to make the more expensive, higher priced, fancier trim level vehicles that were more profitable per unit for them.
But as we moved out of the pandemic, production started to increase and ramp up. A lot of the automotive makers still continued to make these swankier vehicles. They tried to continue to maximize their profits per unit. And they were also focused on spitting out those EVs. And they overshot the mark a bit. Consumers started to really get sticker shock as they were also dealing with other things in inflation, like grocery prices,
high insurance premiums, high interest rates. People just couldn’t afford to buy the new cars. And that’s still true. And the banks themselves got a little bit of sticker shock, combined with an increase in repossession rates of vehicles, even among people with really good credit. So the banks tightened up and got more strict on their lending criteria. They were not approving as many new car loans or used car loans.
And that’s also why the banks have been a little more reluctant to lower the auto loan rates despite the deep cuts that the Fed has been making in the Federal Reserve rate. The banks are just kind of they’re hedging their bets. They are trying to mitigate their risk. But unfortunately, it was too late for the manufacturers to adjust. The automotive industry moves slowly and they certainly
don’t move as quickly as consumer sentiment and behavior. They can’t even keep up with the decisions of the banks. It just takes time to design, roll out, produce cars. So now they’re paying the price for some of those short term, shall we call them, business decisions. Some makes and models really are not selling well. And inventory of those specific models and even specific trim levels is building up on dealer lots in many cases.
So much so that the dealers are refusing allocations, meaning that they are turning away new units from the manufacturer of those specific vehicles. That in turn causes the manufacturers to cut back on production and in some cases lay off workers around the world. Chief there are Nissan and Jeep. They’ve had to have some serious layoffs because they’re not selling the cars that they want to sell.
And so they’ve had to cut back production of those specific models.
Dealers are losing money paying interest on those unsold units. That’s what’s called floor plan. So they are discounting those cars. They’re slashing prices to move those vehicles, those aging units off of their lots. So when new car prices drop, that in turn tends to drop the used car prices, because there’s always got to be some sort of discrepancy between the new car price and the used car price,
as long as there’s new car inventory, because otherwise people are just going to step up and buy the new car for a little bit more. Used car prices themselves are just generally more volatile and they fluctuate more rapidly with the changes in the market and consumer behavior. They’re a little more like stocks in that respect. And used car prices have been dropping. They’ve dropped about 6 % in 2024 over what they were in 2023.
Used car prices peaked in late 21 and 22 when there were not as many new cars, but that is beginning to change. So the market is not crashing. It is readjusting. The question is, will it continue to do so in 2025? The automotive industry as a whole is actually fairly optimistic. I would call it cautiously optimistic,
and more so than the general media or what you might see on YouTube. They finished 2024 stronger than they had expected to do so. And so they feel that the market is gaining some momentum. Some of the uncertainty surrounding the election is settling down. We still have a lot of uncertainty, but at least it’s focused uncertainty. We kind of know what to expect with the incoming administration.
And while the manufacturers and the dealers are certainly concerned about what might happen with tariffs, what might happen with the threat of aggressive immigration policies, things that could send the economy into a recession, obviously that is of concern to the economists and the leaders in the automotive industry. They’re also very concerned about losing their remaining EV tax credits, which is very likely to happen, but it won’t happen on day one.
Despite what the transition team is saying, these things take time to change because the EV tax credits, they are tied into a much larger piece of legislation and it’s not easy to untether one piece of that larger puzzle and make changes. That’s just not how our government works. So what does this mean for you specifically as a car buyer in 2025?
I would expect the manufacturers to continue to offer incentives on the new vehicles, especially in terms of low and even 0 % APRs. The Fed is not going to be raising rates anytime soon. And in fact, I expect that they will continue to drop rates at least one more time, maybe a couple of times as we move through the first quarter of 2025. So that’s good news that will continue to allow the manufacturers, captive finance companies,
to offer those financial incentives to help the cars be a little bit more affordable and motivate us to buy them. Leasing should also continue to improve because again, those lower interest rates allow the captive finance companies to offer better lease terms because leasing does have…
an interest rate. It’s just not called an APR. It’s called a money factor. And you can, if you really want to learn the math behind that, check out my online course. I’ve got a whole module dedicated to leasing and explaining how all of that works. But it’s good that leasing is making a comeback because it does help make cars more affordable. Just don’t use leasing as a financial strategy to get a car that you otherwise cannot afford. That’s how you get in trouble.
But it also means that the traditional banks will hopefully start dropping their new and used car loan rates because they’re always a little bit stickier. The captive finance companies have the ability to move much faster. The banks like to hold up those traditional loan rates because it helps them make money and it minimizes their risk, or least mitigates their risk. But we are seeing some continuing
improvements in the performance of their loan portfolios. That means how the banks are making profits on the loans that they have outstanding. So that’s going to make them feel a little bit more comfortable along with, you know, a reasonably positive economic outlook. So I’m hoping that means that the traditional banks will start lowering their rates, which will help used cars become even more affordable. Credit unions always move faster than your traditional big banks.
We’re already seeing some of the credit unions drop their rates at the end of 2024. So if you’re looking to buy especially a used car in 2025, if you have the ability to join a credit union, look into doing that. Credit unions, that’s always a good decision. Credit unions almost always have the lowest car loans outside of special APRs from the manufacturers. If you have the opportunity,
to join something like USAA or Navy Federal because you have military connection in your household, they are so good. Their loans have already been dropping in rates and they’re just so easy to work with. So if you have that opportunity, I would definitely recommend doing that if you’re gonna buy, especially a used car, but even a new one in 2025. All of these are what I call financial side tools, manipulating interest rates that help make cars more affordable. On what I call the cash side,
meaning rebates and just dealer discounts on cars. I believe we are going to continue to see those, especially on vehicles that are not selling well. Keep in mind, all of this is going to vary and vary drastically by brand down to specific models, even trims within specific models, and certainly by geographic region because different cars sell better in different parts of the country.
The biggest discounts we’re going to continue to see are under the Stellantis group. That’s your Jeep, Chrysler, Dodge, Ram. They are the ones that are having a lot of trouble selling vehicles because they don’t have hybrids. They have a lot of trucks and big honking SUVs that are just not doing as well. And they have completely overshot the mark in terms of production of those vehicles and anticipating what Americans would buy. They’re just too dang expensive for what you get.
We can also likely continue to see good discounts on the Toyota pickup trucks, the Tundra and even the Tacoma, because those are the vehicles that Toyota has been struggling to sell. More because they have had some reliability issues. They are resolving those issues and as consumer confidence in those vehicles starts to come back, assuming they can keep them more affordable, because again, even Tacomas are like over $60,000, which is ridiculous. You used to be able to get a Tacoma for 35 grand.
Affordability overall is going to be the biggest challenge facing the automotive industry and the ability of the manufacturers and their dealers to sell new cars in 2025. Don’t expect to get a killer deal on a hybrid, especially a Toyota or Lexus hybrid or a Honda hybrid. Not gonna happen. They are having no trouble selling those cars and they still have the lowest inventory.
We should start seeing those inventory levels improve in 2025, but demand for them is going to continue to increase as well. So no killer deals there, but you should still be able to negotiate a fair deal if you shop around. On the other hand, if you want say, oh, an electric Hummer, who the hell wants an electric Hummer? You can get a killer deal on those because yeah, nobody wants them and they are just unbelievably stupid, expensive. So.
With new car prices dropping, I think we’re going to continue to see used car prices soften as well, but I don’t think we’re going to see as big of a drop as we saw last year. It is still good news if you are looking to buy a used car. On the other hand, if you are trading in a car, that’s where you’re going to get that other side of the sword. It’s not so good news because the wholesale prices of used cars as they soften
the dealers are not willing to put as much money on your Now, if you have a car that is what I call gently used, usually two to three years old, under 50,000 miles, it’s in good shape. Those are the cars that the franchise dealers like to get to put on their lot as a certified pre-owned vehicle. If it meets the criteria for certification, which it usually will unless you’ve done something to screw it up in the short time you have owned it, they will be able to certify that
and put it on their lot. And they are always desperate for good certified pre-owned inventory. And they’re gonna be still a little more desperate for it going into 2025 because those gently used vehicles were still produced during the pandemic years. So there’s just not as many of them. And the people that did get their hands on those cars, a lot of them are not getting rid of them. They are choosing to hold onto them instead of trading them in on a newer car.
Maybe they didn’t lease because leasing wasn’t good during the pandemic. They bought the car. And so it makes more sense just to hang on to it for a little while longer and kind of see what the market’s going to do and what new vehicles might be coming out in the coming years. So dealers are going to be competing for those gently used vehicles. So your strategy as a car shopper in 2025, if you have one of those vehicles that is what I call certifiable,
not from a psychology standpoint, from a dealer standpoint, be sure you shop that to those franchise dealers in your area. Even if the new car that you’re planning to buy is a totally different brand, you do not have to trade in your car to the dealer you’re buying the new one from. You can choose to sell it separately to another dealer and you may get more money, sometimes significantly more money, know, to sometimes even $3,000 more by selling it to a dealer that really wants it, that can certify it for their lot.
Not every car is going to fall into this category. If it’s a vehicle that people don’t want the new ones of, then the dealers don’t really care about having as many certified pre-owned ones on their lot. Although that does help to get those vehicles down into a more affordable price point for people looking to buy a gently used car. It’s gonna depend on the type of vehicle and there’s gonna be some certified pre-owned cars that if you’re looking to buy one are going to be extra hard to find because
they just didn’t make, hardly any of them, during the pandemic. The manufacturers focused on allocating their meager supply of computer chips and other parts to the most popular vehicles. In the US, that means two and three row SUVs. So things like little sporty cars and sedans, I’ve got a client right now that really would love to have a certified pre-owned, gently used, four series BMW coupe.
They just want something fun and sporty and they’re going to hang on to their older Lexus SUV, which will run forever if they keep it up. But they’re hard to find because they just didn’t make a lot of those types of cars during the pandemic years with the chip shortage. So I’ve warned them. It may take us a while to find the right one. It’s going to be a little bit more challenging. So that is something that you need to be aware of going into car buying in 2025. But despite the slowdown in electric vehicle sales in the US,
and the deep, deep discounts that we have been seeing on certain models, EV sales are going to continue to rise into 2025 and likely beyond. There are, I think about 15 totally brand new electric vehicles that are going to be added to the market next year, along with more hybrids, more plug-in hybrids. The world right now is going electrified.
And because the automotive industry moves so much slower than consumer behavior, those new models have been in the works, in the plan, in the pipeline for several years now. They’re not just going to be able to turn on a dime and suddenly start making different types of vehicles. Those electric vehicles, they are coming to market whether we want them or not. But hopefully there going to be some exciting new models. And Cox Automotive actually is expecting that one out of every four
new vehicles in the United States in 2025 will be electrified in some form. And that doesn’t surprise me given the popularity of hybrids. So those are my predictions for the car market for 2025. I realized that I’m only kind of looking into the first part of 2025 because as we get into third quarter, fourth quarter, it does get a lot murkier because that’s when whatever policies the new administration is going to implement,
those will start to be seen and start to have their effect on the market and on our economy. So that makes the crystal ball much, much more cloudy. But overall, I think it’s going to be a good year to buy a car if you can afford one. But hopefully the affordability will start to come down. The Honda Nissan merger could be good if they do it right. And there are some very exciting new and fully redesigned models
that are on the calendar for 2025. And I am going to talk about my favorites of those in next week’s episode. So be sure to tune in to see what exciting new and redesigned models will be released in 2025. And no matter what happens in the market, what’s going on,
you can always learn how to get the best deal for yourself in my online course, the No BS Guide to Buying a Car – Your Inside Track to Getting the Best Deal. All of my knowledge and 20 years of experience in the automotive industry are poured into that online course so that you can empower yourself to get a good deal, no matter what else is going on in the world. You can catch that on my website, thecarchick.com or directly at carbuyingcourse.com.
So thanks again for joining me folks. I hope 2025 is starting out really super for you. And until next week, drive safely. I’m out of here.
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