Troubling Times for Car Dealers: Escalating Tariffs, Interest Rates, and Sluggish Sales Pose a Danger
In a surprising turn of events, concerns surrounding tariffs have escalated from a non-issue to a major concern for the automotive industry, as noted by Charlie Chesbrough, senior economist for Cox Automotive. This shift in focus from interest rates to the economy in Q2 2025 could be attributed to the potential impact of tariffs on the automotive sector.
Chesbrough, comparing the situation to the RMS Titanic approaching an iceberg, predicts that new vehicle sales in summer 2025 will slow down. He attributes this expected decline to several factors, including tariff-driven cost increases. These tariffs, set to take full effect this summer, could add significant costs to imported vehicles and those assembled in the U.S., potentially amounting to $5,700 on imported vehicles and over $1,000 on vehicles assembled in the U.S. due to parts tariffs.
These price hikes and increased costs are likely to lead to further pressure on sales volume. Cox Automotive's full-year 2025 sales forecast range remains between 15.6 to 16.3 million vehicles, but the organisation currently leans towards the lower end of this range, projecting a 1% decline from 2024 sales numbers.
Dealers are advised to prepare for a slower summer market and to focus on strategic sales execution and inventory management to navigate these challenges. The Q2 2025 dealer sentiment survey by Cox Automotive reports that tariffs are a factor holding back business for 33% of dealers.
The lowered forecast of 15.3 million to 16.3 million units is due to the potential impact of the tariffs on the automotive industry. The "baseline" forecast for 2025 stands at 15.7 million units, down from the previous forecast of a range of 15.6 million to 16.3 million units.
The recovery from the COVID-19 pandemic had enough consumer demand to offset the loss in volume, but this is not certain for today. Consumer confidence is crucial for dealers, as it affects their ability to secure loans for new vehicle purchases. The forecast is subject to change based on how the economy and vehicle buyers react in the next couple of months.
In the Q2 2025 poll, 33% of dealers cite tariffs as a factor holding back business, a significant increase from 7% in the first quarter and 3% in Q2 2024. This shift in concerns suggests that the concerns of dealers regarding their business have shifted significantly since the first quarter.
The drop in consumer sentiment, as reported by Chesbrough, is also associated with the new tariff policy. The findings from the Q2 2025 dealer sentiment survey suggest a cautious and somewhat restrained auto sales environment, with the economy being the top concern for dealers at 51%, while interest rates are the No.2 concern.
In summary, the Trump Administration tariffs are expected to slow new vehicle sales in summer 2025, contributing to a challenging and potentially depressed market as predicted by Charlie Chesbrough. Dealers are urged to prepare for these challenges and to manage their sales and inventory strategies accordingly.
Education and self-development become crucial for dealers as they prepare for a challenging automotive market in summer 2025. Dealers may need to expand their knowledge on strategic sales execution and inventory management to navigate the anticipated tariff-induced slowdown in sales.
