In today’s episode of Inside Automotive, Charlie Chesbrough, senior economist at Cox Automotive, joins us to break down January’s auto sales data and what it suggests about the industry’s direction in 2025.
January is historically one of the slowest months for new-vehicle sales, and this year was no exception. The seasonally adjusted annual rate (SAAR) in December closed at a strong 16.8 million units but dipped to 15.6 million in January. While this decline could signal a softening market, Chesbrough points out that severe weather across much of the country likely played a major role in suppressing sales activity.
Despite this slowdown, new-vehicle sales remained higher year-over-year, aligning with Cox Automotive’s forecast of modest growth in 2025. The company expects the market to improve slightly—projecting around a 1% increase in total sales compared to last year.
One of the most notable trends in January was a continued consumer shift toward smaller, more affordable vehicles. Sales of compact cars and compact SUVs gained market share, while mid-size cars and mid-size SUVs saw declines. Chesbrough attributes this trend to ongoing affordability concerns, as buyers look for ways to manage high vehicle prices and rising interest rates.
This shift isn’t new—Cox Automotive analysts first identified it in 2024—but its persistence into 2025 suggests a fundamental change in consumer behavior. With affordability pressures still weighing on many buyers, demand for smaller, more cost-effective vehicles is likely to remain strong throughout the year.
The industry began 2025 with approximately 3 million new vehicles in inventory, a few hundred thousand more than at the start of 2024. While this increased supply gives consumers more options, it has also led to longer days’ supply, now slightly exceeding 90 days. If this trend continues, Chesbrough expects automakers and dealers to ramp up incentives and promotional offers to help move inventory.
Another looming concern is the potential for new tariffs on imported vehicles and parts. Former President Donald Trump has threatened to impose a 25% tariff on vehicles imported from Canada and Mexico, which could significantly impact pricing across the industry.
Chesbrough acknowledges that while these tariffs aren’t an immediate factor affecting auto sales, they could push some consumers to accelerate their purchasing decisions to avoid potential price hikes. However, if implemented, these tariffs would inevitably raise costs for both automakers and buyers, making affordability an even greater challenge in the long term.
Cox Automotive analysts expect EV sales to continue growing in 2025, with traditional automakers gaining market share at the expense of Tesla. Established OEMs have been expanding their EV offerings and increasing production capacity, making them more competitive in the space.
However, the EV market also faces a significant challenge: the potential repeal of the $7,500 federal EV tax credit. The Trump administration has signaled an intention to eliminate the incentive, which has played a critical role in driving EV adoption. If the credit is repealed, it could slow demand and make it harder for automakers to achieve their EV sales targets.
Chesbrough is skeptical about whether the administration will follow through with this move. Given the broader push toward electrification and the industry’s investments in EV infrastructure, eliminating the incentive may prove politically difficult.
While 2025 presents some challenges—ranging from affordability concerns and rising inventory levels to potential trade disruptions—Cox Automotive remains cautiously optimistic. With a projected 1% increase in total auto sales, the market is expected to see modest growth despite economic uncertainties. As consumers continue adjusting their purchasing habits and automakers respond with pricing strategies and incentives, the industry will be closely watching these evolving trends in the months ahead.
"We still expect the market to just do a little bit better than it did last year. The buying conditions are moving towards the ] consumer's direction. We're expecting interest rates to come down just a little bit and continued economic growth and job creation. It's just a recipe that says the market should do a little bit better, but there's still certainly a lot of headwinds out there that are keeping us from a more robust market." – Charlie Chesbrough
