Top auto economist Jonathan Smoke, chief economist for Cox Automotive, believes that while tariffs and economic concerns are creating headwinds for the automotive industry in 2025, the impact on car sales may not be as severe as some have predicted.
The industry is facing a “perfect storm” of challenges: higher prices due to new tariffs, lower production levels, tighter supply, and elevated interest rates. In April and May 2025, the U.S. imposed a 25% tariff on all imported passenger vehicles and auto parts, with additional tariffs on imported steel and aluminum rising to 50% in June. These measures were expected to sharply increase vehicle prices, reduce sales, and squeeze dealer inventories. Some forecasts warned that persistent tariffs could strip as many as 2 million vehicle sales from the U.S. and Canadian markets in 2025 alone, with the long-term risk of a shrinking auto market and major supply chain disruptions.
Despite these pressures, Smoke says the industry is “bearing economic uncertainty and higher interest rates surprisingly well.” Several factors are helping to cushion the blow. First, the U.S. government has introduced temporary offset credits and exemptions for vehicles and parts that meet United States-Mexico-Canada Agreement (USMCA) standards, reducing the immediate impact for many manufacturers. Second, automakers have been proactive in managing supply chains, shifting sourcing and production to minimize tariff exposure. Finally, the industry is still benefiting from pent-up demand and a resilient consumer base, with new car sales expected to remain relatively robust compared to the most dire predictions.
While higher prices and tighter supply are expected to push more buyers into the used car market and make financing more challenging, the overall decline in vehicle sales may not be as steep as originally feared. The flexibility of the industry, combined with targeted government relief and ongoing consumer demand, means that the worst-case scenarios for 2025 could be avoided—at least for now.
In summary, while tariffs and economic uncertainty are clearly weighing on the automotive sector, the industry’s adaptability and government interventions are helping to prevent a total collapse in sales. The situation remains fluid, but for now, the outlook is less catastrophic than many had predicted earlier in the year.
