After a wave of rushed purchases driven by looming tariffs, US car sales began to slow down, beating the automakers.
According to data released last month by Cox Automotive, the company fell 300,000 in June from 15.6 million to 15.3 million.
“Sales are slowing as extremist purchases attracted most of the many people who might have been on the market this year,” Cox Automotive Director of Industry Insights Mark Schirmer told Al Jazeera.
This will only become more difficult in the future for automakers, dealers and shoppers.
“Prices rise with demand destruction,” Chinagorala, an assistant professor of supply chain management at Robinson Business College in Georgia, told Al Jazeera. “If consumers don’t have the resilience to pay these higher prices, they take a step back.”
US President Donald Trump’s unstable approach to tariffs, introducing some, and taking them away, made planning difficult for businesses. In April, auto companies, including Stellantis, Ford and Volvo, suspended their financial guidance as a result of uncertainty.
Last month, Volvo said tariffs would cost $1.2 billion in the second quarter. Ford then announced it expects annual profits to fall to $3 billion after receiving a $800 million hit from tariffs in the second quarter. GM announced it expects a $5 billion hit, and said Toyota expects a $9.5 billion hit based on profits that year.
In May, Ford also announced that prices would need to be increased for several cars made in Mexico. This can cost as much as $2,000 in some cases, including Mustang Mac High Electr SUVs, Maverick pickups and Bronco Sports. Many of these cars started to arrive last month.
As a result, consumers are already on US roads and are overwhelmingly choosing used cars that are not subject to customs duties, including foreign-made vehicles.
Used car sales have risen 2.3% from last year, according to Used Car Index Report, an automotive industry insights platform.
Partly because of limited supply of used cars. According to an Edmunds report, buyers and sellers considering upgrading need money from current car sales and are hesitant to undertake the costs amidst economic uncertainty.
The major impact of both these trends is the stacking of inventory. On average, dealer lots have 82-day cars, up about 14% between May and June.
Expensive escalation
Cox’s forecast price could rise between 4-8% over the next six months, as a result of the tariffs. The group is looking forward to new cars being sold this year from 13 million to 13.3 million.
“Taxes will be inflation in both the new and used car markets,” Schirmer said, with the main challenge now being stacked stock.
Analysts believe prices will continue to rise amid Trump’s tariffs as businesses try to move their supply chains to the US, as Trump demands.
“Tax “relief” is like putting a band-aid on bullet wounds with US auto companies dealing with future impacts as this Twilight Zone situation changes the paradigm of the US auto industry for years to come.
In the meantime, Cox Automotive said the cost of importing cars is expected to increase by $1,000 this year.
“The US imports less than half of the new vehicles sold, but their dependence on imports varies greatly from segment to segment. The most dependent segments are on both ends of the price spectrum: the most affordable and luxury vehicles.
EVs hit hard
Trump’s new tax law, which was signed into law last month and reduced EV tax credits of up to $7,500, is bringing a huge pullback, especially for the electric vehicle market as demand for products begins to decline.
“Our forecast was that around 10% of new vehicle sales this year would be EVs, and we reduced that to just 9%,” Schirmer added.
Volvo reported a 26% decline in electric vehicle sales (12% overall). Ford EV sales fell 31%. Libian saw a 23% drop in sales. Tesla has dropped 13.5% worldwide as CEO Elon Musk’s political involvement hindered the brand’s reputation. The reduction in EV tax credits is expected to cost $1.2 billion each year, JP Morgan predicts.
“Some dealers have said these (EV tax credits) are the main drivers (for consumers), so without these incentives it’s definitely going to hit EV sales a big hit,” added Golara.
General Motors is an exception to this rule. Michigan-based Autogiant has doubled its EV sales in recent months.
Despite the decline in sales, Golora believes that the set-up in the EV market is temporary.
“The (EV market) is still persuasive in the long run, as many manufacturers have reached a decision that the industry is already on the way,” Golara said.
“The investment in (EV production) doesn’t look like something lost. The payback period will be long.”
Manufacturing stock
US manufacturing has been checked comprehensively in June for automobile and parts production, but that’s a different story. Production fell by 2.6% that month as demand began to slow.
U.S. auto manufacturing employment is also declining. According to the Bureau of Labor Statistics, employment in the U.S. in the U.S. has fallen 35.7% since this period last year, and 2.4% from last month.
Al Jazeera contacted United auto workers to comment on the impact on the automotive manufacturing jobs, but the organization did not respond.
“Demand is not growing fast as needed, and many manufacturers have been caught up in surprise. It’s a problem, and it’s kind of a long-term structural issue,” Golala said.
