Inside Automotive with Jim Fitzpatrick, powered by CBT News

Automotive Market Forecast: Tariffs & Trends

• Jim Fitzpatrick • Season 1 • Episode 1

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April's automotive sales numbers have stunned industry observers, with the market achieving its second consecutive month above a 17 million unit SAAR – performance levels not seen since the early pandemic era of 2021. NADA Chief Economist Patrick Monzi reveals this surge likely stems from savvy consumers making strategic "pull-ahead purchases" to beat impending tariffs, creating what could be one of the strongest second quarters in recent memory.

The domino effect is already hitting the used vehicle market, where prices are climbing amid tightening inventory. With used vehicle day supply at just 43 days – the lowest in years – dealers are dusting off their COVID playbooks for creative inventory acquisition. The perfect storm of fewer off-lease vehicles (thanks to reduced leasing penetration falling from 30% to 15% three years ago) coupled with rising demand has created significant pressure on used inventory availability.

Looking beyond this immediate surge, Monzi identifies several economic headwinds facing the industry: persistently high interest rates with no relief in sight, rising vehicle prices, and skyrocketing insurance costs (up a staggering 55% since pre-pandemic). Meanwhile, the EV landscape continues evolving with franchise dealers now controlling over half the battery electric vehicle market, though consumer preference is clearly shifting toward hybrids, which are seeing 40% year-over-year growth monthly. With California's Advanced Clean Cars II regulation likely disappearing, manufacturers gain flexibility to align production with actual consumer demand rather than regulatory targets.

The forecast for 2025 has been adjusted downward to approximately 15.3-15.4 million units from the original projection exceeding 16 million, though Monzi believes the full impact of tariffs won't materialize until 2026. As industry stakeholders navigate this complex landscape, they remain vigilant about upcoming policy announcements that could dramatically alter market trajectory. Subscribe to hear more expert analysis on how these factors will shape automotive retail throughout 2025 and beyond.

Jim Fitzpatrick:

You're watching Inside Automotive with Jim Fitzpatrick. Hey everyone, Jim Fitzpatrick, we are now joined by Patrick Manzi, who is the Chief Economist for NADA. Patrick, thank you so much for stopping by CBT News. It's always great catching up with you and learning as to what we can expect out of the year ahead. So let's start by talking a little bit about April. April marked the second consecutive month of SAR being above 17 million units, which is great news for dealers. How do you expect this to impact demand in the second half of 2025?

Patrick Manzi:

Well, first, thanks for having me, Jim. It's always great to see you too. Yeah, I mean April sales numbers, March of sales numbers. Those are the highest SARs we've seen since March and April of 2021. And we all remember what was happening back then. That was when everybody kind of got wind of the chip shortage coming. Inventory was really sold down. We're all vaccinated. People had money, and so we saw the SAR climb above 18 million back in April. So it's one of the strongest performances in many, many years. But really I think consumers are smart. They're aware of the tariffs that have been enacted by the current administration.

Patrick Manzi:

And so they wanted to get out there and get their hands on some inventory that wasn't affected by tariffs. So really. I think you've seen a lot of pull-ahead purchases here and I think that's going to end up. You know we're going to have a really solid Q2, probably one of the best second quarters we've had in a long while. As dealers work through this pre-tariffed inventory, yeah, that's great, that's fantastic.

Jim Fitzpatrick:

With rising vehicle prices, are we likely to see more consumers moving though to used vehicles versus new?

Patrick Manzi:

More consumers moving, though, to used vehicles versus new. Oh, absolutely yeah. We've already seen, you know, some rising prices in the wholesale market. Talking with dealers, I hear they're paying more in the lanes, and you know personally, I sold a car recently. I checked all the normal sites that you might want to check for valuations and I watched my valuation go up for several weeks in a row before.

Patrick Manzi:

I've needed up selling the vehicle. So, yeah, we're seeing used prices up because there is demand Data supply. If you look at some of the data Cox puts out on inventory and used vehicle day supply, I think it's around 43 days right now for used vehicles and that's the lowest it's been in several years. So I know the dealers are going to bust out that COVID playbook, blow the dust off of it. I wouldn't be surprised if I start seeing those.

Patrick Manzi:

We'll buy your car signs getting put back up along the roads as they try to get creative with new ways to source these vehicles. These vehicles we were already kind of facing a bit of a challenge with late model going into this year, because the number of off-lease vehicles has fallen dramatically, because if you go back three years we sold many fewer cars and the leasing penetration of the ones we did sell fell to about 15%, down from about 30%. So we're feeling that now. So we have increased demand from consumers, we have a lower and tighter supply. That's a perfect storm for, you know, higher use prices, I think.

Jim Fitzpatrick:

Right, right. And like COVID that you were mentioning earlier, dealers like the fact that there's lower inventories out there, Right, I mean it brings down their floor plan costs in a very, very big way. Might even save on some headcount right to maintain that inventory, so that's not a terrible thing, right.

Patrick Manzi:

Yeah, I mean, floor plan savings is a big one, right, that can be a major expense or it can almost turn into somewhat of a profit center on new vehicles. But yeah, I'm sure every dealer out there is happy. You know that the cars are turning faster and I would hope that we don't see any reductions in headcount because we just finally got back to our kind of pre-pandemic level of employment at franchise dealerships. We're back over 1.1 million employees across the country, and so just personally, I wouldn't want to see anybody lose their jobs.

Jim Fitzpatrick:

Well, maybe I should have said reallocated in the dealership, rather than losing headcount, right.

Patrick Manzi:

Maybe they move some of the new sales folks over to used or something like that.

Jim Fitzpatrick:

Sure, sure. From your perspective, what are the most significant economic risks facing the automotive industry for the rest of 2025? What are some of the things that may keep you up at night about the industry?

Patrick Manzi:

Well, you know we're going to see we're not really going to see any relief in borrowing costs. If you look at, you know, some of the longer term treasury yields, those are still elevated. Yeah, it's what you know. Largely auto finance rates are pegged to and you know the Fed's really probably not going to make any moves either to cut rates, and so I think we're going to have this high interest rate environment in a world rising new vehicle prices. So that's already a struggle. And then you add in the increasing costs of car insurance. Now that's up. According to the Bureau of Labor Statistics, cpi, on motor vehicle insurance that's up about 55 percent since just before the pandemic and in the last reading we got it was up 6.4% year over year Now that's a marginal cost for the consumer, but all of the numbers matter in a car deal and dealers are very well aware and so that's just one more issue we're going to have to deal with.

Patrick Manzi:

I'm also a little concerned about maybe some slowing growth, because we have seen a lot of big purchases pulled ahead and I think consumers may sit on the sidelines a little bit for some of these big ticket items as they wait for more certainty with regards to policy out there.

Jim Fitzpatrick:

Yeah for sure. What about on the EV front? What have you got to report on EVs?

Patrick Manzi:

I. The biggest stat I like to talk about is franchise dealers now control over 50% of the battery electric vehicle market so they're selling the majority of battery electric vehicles out there. You know it looks like ACC2 out of California is going to go away, so the OEMs are going to have to hit some of these big, you know 35, 43 percent electric vehicle targets that we're going to just crash it up each year and I think that's going to allow them to, you know, kind of pace out better the introduction of some of these products Right now. If you look at the data, hybrids are just, you know they're red hot, they're up 40 percent over a year, each month, and that's where the consumer's mind is at right now.

Patrick Manzi:

So, it gives, you know, the OEs a little more time to kind of work on these EVs, figure out a little bit more what the consumers want and, you know, deliver them at a pace that consumers demand. So I'm still confident we're going to see growing penetration of battery electric vehicles, but it's just going to take longer than we all thought it would.

Jim Fitzpatrick:

Yeah, yeah, for sure. What do you think will and I know it's very early in the year and a lot could happen, but what kind of a SAR are you forecasting for the year, with all of this that's taking place now?

Patrick Manzi:

Well, you know big global news. We could get an announcement tomorrow that blows up everything or cause a big shift. But from where I sit today. You know we're going to have a really strong first two quarters because of all the pull-out purchases and I kind of expect, you know, kind of low to mid-15 million unit range. So let's call it a 15.3, 15.4 million unit SAR.

Patrick Manzi:

Now that is down from. You know, an above 16 million units are we were expecting at the beginning of the year. But you know, I don't think it's going to be. We're not really going to feel the effects I should say rather, of tariffs this year. I think that will. We will see more of an impact on sales in twenty twenty six for this. Right now I think all the OEMs are just trying to figure out, you know, the optimal way to produce these vehicles and get them on the dealer lots.

Jim Fitzpatrick:

Sure, sure. Patrick Manzi, Chief Economist for NADA, thank you so much for stopping by and giving us this update. Very much appreciate it. Everybody that's in the industry is staying very, very close to all of the news to figure out what Trump's next move is on tariffs. Right, that's going to dictate a lot.

Patrick Manzi:

We're doing the same thing here at NADA. We're reading everything we can, just trying to better understand what's coming, and you know. Thank you so much for having me, jim. I always enjoy our conversations.

Jim Fitzpatrick:

Absolutely Thanks so much. Stay well. Thanks for watching Inside Automotive with Jim Fitzpatrick.