New light vehicle sales in the U.S. reached a seasonally adjusted annualized rate (SAAR) of 15.9 million units in July, according to S&P Global Mobility. This is an improvement from 15.5 million units averaged during May and June. This modest growth in sales volume, projected at 1.33 million units sold, is a roughly 3.2 percent increase year over year according to a joint forecast from J.D. Power and GlobalData. J.D. Power had initially projected SAAR to hit 16.4 million units earlier in the month.
“Overall, auto demand in July is expected to remain modest, as affordability concerns remain entrenched,” said Chris Hopson, principal analyst at S&P Global Mobility. “The pace of sales is expected to improve compared to the previous two months as the market digests the likely beginning of a second wave of pull-ahead demand in 2025. This time sales will be buoyed by a run up in battery electric vehicles (BEVs) in advance of the September 30th expiration of federal EV incentives.”
Battery-electric vehicles (BEVs) emerged as the standout segment in July, capturing over 9 percent of the sales mix, compared to a year-to-date average of 7.3 percent through May. Anticipation surrounding the expiration of federal tax credits likely spurred consumers to accelerate EV purchases before the September deadline. Hybrid vehicles also maintained strong performance, with a projected 13.9 percent share of retail sales, up 2.9 percentage points from July 2024 according to J.D Power. Plug-in hybrids, while a smaller market, have similarly benefited from the same dynamics boosting EV performance.
While this is helping increase sales right now, EV market share is expected to dip sharply in the fourth quarter as incentives phase out and affordability concerns reemerge.
Consumer Spending Hits Record Highs
Enhanced demand, paired with rising transaction prices have driven total consumer spending on new vehicles to a record $49.8 billion for the month, up 11.3 percent year over year according to J.D. Power. The average transaction price for a new vehicle is expected to reach $45,063, marking a 2.1 percent increase from July 2024. Manufacturers, however, have moderated their incentives, which now average $3,051 per vehicle, or 6.1 percent of the average MSRP, down slightly from a year ago.
“The average used-vehicle price is trending towards $29,514, up $896 from a year ago. This reflects the combination of reduced supply of recent model-year used vehicles—due to lower new-vehicle production during the pandemic—fewer lease maturities and manufacturers moderating discounts,” said Thomas King, president of the data and analytics division at J.D. Power. “The rise in used prices is good news for new vehicle buyers trading in their used vehicle, but is merely offsetting the higher loan balances that exist on vehicles being traded in.”
Despite higher vehicle prices, average loan interest rates have eased to 6.54 percent, a 30-basis-point drop from July 2024. This has softened the blow of record-high monthly finance payments, which are poised to reach $742, up $12 from a year ago. Meanwhile, leasing activity continues its decline, accounting for just 22 percent of sales, down from 24.1 percent in July 2024.
Broader Implications for the Market
The recovery in overall sales underscores the rollercoaster that the automotive market has faced in 2025. Affordability remains a consistent challenge, limiting growth. As federal tax credits disappear, manufacturers may face heightened pressure to recalibrate pricing strategies and focus on cost-effective production initiatives.
“While the expiration of federal EV incentives will create longer-term headwinds for BEV growth, price-conscious consumers looking to take advantage of the savings are likely to do so before the end of the third quarter,” said Hopson. “Helping to push overall new vehicle volumes, although to a lesser degree than realized back in March and April.”
Looking ahead, the end of EV incentives, combined with seasonal inventory adjustments, is expected to set a more subdued tone for the remainder of 2025. However, the market’s performance in July underscores its resilience and capacity to adapt no matter what this whirlwind year throws its way.
“On average, tariffs are adding $4,275 per vehicle, though the effects on individual models vary widely,” said King. “Despite this, most price increases have remained modest, with some models seeing little to no change. Additional price adjustments are expected through the fall season, especially as new model-year vehicles launch, but final pricing strategies may not emerge until after year-end sales events.”
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