As the auto industry celebrates a powerful start to 2025, a new challenge is already shaking market expectations: President Trump’s implementation of sweeping tariffs. In today’s episode of Inside Automotive, Edmunds’ Head of Insights, Jessica Caldwell, unpacks the impact of rising costs on consumer affordability, inventory trends, and what the rest of the year could hold for automakers and dealers alike.
Edmunds has forecasted that Q1 2025 will be the strongest first quarter of new vehicle sales performance since 2021. Much of this explosive growth was fueled by improved inventory levels, modest but appealing incentives, and a late-quarter surge in consumer demand sparked by new tariff announcements. Caldwell notes that while incentives remain far from pre-pandemic levels—zero percent financing offers, for instance, are still rare—they are beginning to make a comeback, especially in financing, to help offset interest rates that now average over 7% for new vehicles and more than 11% for used.
The new tariffs are creating uncertainty around vehicle pricing and availability, particularly for lower-priced models. Caldwell highlights a 29% increase in average transaction prices over the past five years, a trend that’s already pushed many buyers out of the new car market. Tariffs could accelerate that shift, further squeezing affordability for entry-level consumers.
Caldwell compares the current situation to the semiconductor shortage when consumers migrated toward used inventory to escape inflated new car prices. However, increased demand could once again drive up used prices, and the effects of tariffs on parts will likely raise costs across the board—including repairs and dealer reconditioning.
When asked if Edmunds will adjust its annual sales forecast, Caldwell emphasizes the uncertainty surrounding how long the tariffs will remain in place. The impact can vary dramatically based on the timeline, and automakers can’t shift supply chains or pricing strategies overnight.
The conversation also touched on the surprising political shifts in the industry, including union leader Sean Fain’s support for policies that may ultimately benefit UAW jobs despite his prior opposition to the administration behind them.
“Transaction prices have risen 29% in the past five years. And then you add tariffs on top of that… I think what we’ll see is that new vehicles continue to cater to folks with higher income levels, and everyone else is kind of relegated to the used car market.” – Jessica Caldwell
