After a wave of rushed buying, driven by looming tariffs, US car sales have started to slow, weighing on carmakers.
New car sales fell by 300,000 in June from 15.6 million to 15.3 million, according to data released by Cox Automotive last month.
“Now we’ve got sales slowing because [the pre-tariff buying] surge pretty much pulled ahead a lot of people that might have been in the market this year, who wanted to buy before tariffs hit,” Mark Schirmer, director of industry insights at Cox Automotive, told Al Jazeera.
This will only get harder for carmakers, dealerships and shoppers down the road.
“Price rises together with demand destruction,” Sina Golara, assistant professor of supply chain management at Georgia State’s Robinson College of Business, told Al Jazeera. “If consumers don’t have the resilience to pay for those higher prices, they’ll take a step back.”
United States President Donald Trump’s erratic approach to tariffs, putting some in place and then taking them away, has made it difficult for businesses to plan. In April, car companies, including Stellantis, Ford and Volvo, suspended financial guidance as a result of the uncertainty.
Last month Volvo also said that tariffs will cost it $1.2bn in the second quarter. Ford then announced it expects a reduced annual profits to $3bn after taking an $800m hit from tariffs in the second quarter. GM announced that it expects a $5bn hit, and Toyota said it expects $9.5bn in tariff-driven blows to profits for the year.
In May, Ford also announced it would have to raise prices on some of its cars made in Mexico, including the Mustang Mach-E electric SUV, Maverick pick-up truck and Bronco Sport, in some cases by as much as $2,000, the Reuters news agency reported. Those cars began to reach lots last month.
As a result, consumers are overwhelmingly opting for used cars that are not subject to tariffs, including foreign-made ones, as they are already on US roads.
Used car sales are up 2.3 percent from this time last year, according to Used Car Index report, an auto industry insight platform by Edmunds.
In part, this is because of the limited supply of used cars. Edmunds’s report says that buyers, and sellers looking to upgrade but need the money from sale of a current car, are hesitant about undertaking expenses amid economic uncertainty.
The bigger impact of both those trends is of inventory piling up. On average, dealerships have 82 days worth of cars on the lot, a roughly 14 percent increase between May and June.
An expensive escalation
Cox forecasts prices could rise anywhere between 4 to 8 percent over the next six months as a result of the tariffs. The group expects new car sales of 13 million to 13.3 million this year.
“Tariffs will be inflationary on both the new and used vehicle market,” Schirmer said, adding, the main challenge right now is the unsold inventory that’s piling up.
Analysts believe that prices will continue to rise amid Trump’s tariffs, especially as companies try to move supply chains to the US, as demanded by Trump, an effort that is years in the making.
“The tariff ‘relief’ is like putting a band-aid on a bullet wound with US car companies now dealing with the repercussions moving forward as this Twilight Zone situation will change the paradigm for the US auto industry for years to come,” Dan Ives, analyst at Wedbush Securities, said in a note provided to Al Jazeera.
In the meantime, the cost to import a car is expected to increase by $1,000 this year to $5,700, according to Cox Automotive.
“The US imports a little less than half of the new vehicles sold, but dependence on imports varies substantially by segment. The most dependent segments are at the two ends of the price spectrum – the most affordable vehicles and luxury vehicles. Most of the vehicles priced under $30,000 would face added costs that would make them unaffordable,” Cox Automotive chief economist Jonathan Smoke said in a June conference call shared with Al Jazeera.
EVs hit hard
Trump’s new tax legislation – signed into law last month and which cut the EV tax credit of up to $7,500 – has already led to a significant pullback specifically for the electric vehicle marketplace as demand for the products begins to fall.
“Our forecast had been for approximately 10 percent of new vehicle sales this year to be EV. We slightly lowered that to 9 percent,” Schirmer added.
Volvo reported a 26 percent decline in sales for electric vehicles (12 percent overall). Ford EV sales tumbled by 31 percent. Rivian saw sales decline by 23 percent. Tesla saw a decline of 13.5 percent globally as CEO Elon Musk’s political involvement hindered the brand’s reputation. The cuts to the EV tax credit is expected to cost Tesla $1.2bn every year, JP Morgan forecast.
“Several dealers have also stated that these [EV tax credits] are the main drivers [for consumers]. So without those incentives, there would definitely be a significant hit through EV sales,” Golara added.
General Motors has been the exception to the rule. The Michigan-based auto giant doubled its EV sales in recent months.
Despite the dip in sales, Golora believes that the setback in the EV market is temporary.
“It’s [the EV market] still compelling in the long run because many manufacturers have already reached a decision that this is where the industry is going,” Golara said.
“Investment [in EV production] doesn’t look like a lost one. The payback period will be longer.”
Manufacturing strains
While US manufacturing ticked up overall in June, when it comes to motor vehicle and parts production, it is a different story. Production tumbled by 2.6 percent for the month as demand began to slow.
US auto manufacturing employment is also down. According to the Bureau of Labor Statistics, employment in auto manufacturing in the United States has tumbled by 35.7 percent since this time last year and down 2.4 percent from this time last month.
Al Jazeera reached out to the United Auto Workers for comment about the effect on car manufacturing jobs, but the organisation did not respond.
Source: Aljazeera
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