Halfway through 2025, it’s safe to say this has been the year of the tariff. Import tariffs have dominated the news, the market, and the minds of consumers ever since being announced in March.
Consumers responded earlier in the year by rushing to make purchases. This led to a sudden, temporary, jump in new car sales. New vehicle sales surged by 48 percent year over year according to the CarGurus Mid-Year Intelligence Report. However, the increase in sales only lasted a couple months, as sales patterns have since aligned back with typical seasonal trends.
Interestingly, this surge disproportionately impacted affordable inventory, with cars priced under $30,000 seeing the fastest decline in new listings. Compact cars and crossovers were the hardest hit, narrowing options for budget-conscious buyers. The result? Over 60 percent of vehicle listings transitioned to reflect post-tariff pricing, creating significant challenges for cost-sensitive consumers.
“So far this year, the auto market has been shaped by dramatic shifts in consumer behavior fueled by shifting policies and economic uncertainty,” said Kevin Roberts, Director of Economic and Market Intelligence at CarGurus. “These pressures have amplified what car shoppers demand most: affordability and efficiency. While vehicle prices have mostly held steady despite tariffs, it remains to be seen how long the current balance of pricing and demand can last, especially as value-driven options become harder to find.”
Affordability Challenges
This affordability squeeze poses significant challenges for both consumers and dealers. Many budget buyers now face limited options, and dealers are left managing higher-priced vehicles that are slower to sell. If automakers reduce incentives in response to increased costs, we may see affordability concerns intensify further, potentially pushing an even wider segment of the population out of the new vehicle market altogether.
This has presented a unique opportunity for the used car market. Used inventory levels reached multi-year highs in 2025, offering extensive options for buyers. However, within this abundance lies a scarcity of 3- to 4-year-old vehicles, which remain highly sought-after and command a premium price. Older hybrids, alternative-fuel models, and fuel-efficient small cars emerged as some of the fastest-selling vehicles in this sector. While larger SUVs generally linger on dealer lots despite becoming more competitively priced. This trend underscores the ongoing consumer preference for practical, value-oriented options.
Still, the averaged used vehicle increased in price by 6.1 percent so far this year, now sitting at $28,900. For any consumers looking for a vehicle under $20,000, they must target increasingly older models, with 8 years old cars being the newest cars available for that price. Even 13-year-old vehicles are still sitting above $10,000 on average.
Supply and Pricing
The aftershocks of the pandemic-era supply chain challenges continue to reshape today’s market. Used car inventory demonstrates this clearly, with the dominance of older model trucks and vans. On the pricing front, average vehicle prices rose across all sectors year-to-date.
However, despite tariff-related pressures, the overall average list price of new vehicles remained relatively stable at $49,600, only rising 0.3 percent. New car prices did not move uniformly though. Some OEMs managed to hold the line on costs, and pricing trends varied widely across brands and models. Luxury SUVs, for instance, registered significant price increases, while EV prices showed some declines. Meanwhile, Volkswagen, Hyundai and GM have all seen the largest price increases since April, while Nissan, Mitsubishi and Toyota vehicles have actually reduced in price on average.
Hybrids on the Rise, EVs in Transition
After reaching new heights in 2024, hybrid vehicles have continued their dominance in 2025. With consistent demand, competitive pricing, and fast-moving inventory, hybrids remain the fastest-growing segment in the market. Most shoppers view hybrids as a sensible alternative to traditional gas-powered vehicles, reinforcing their practicality and attractiveness. Hybrids saw a 2.6 percent price increase to an average of $44,100, and a significant 43 percent increase in sales.
Meanwhile, electric vehicles have also posted growth but are not keeping pace. The decision-making process for EV shoppers appears to have shifted, with more consumers directly comparing EVs to gas-powered models rather than hybrids. A lack of competitive pricing and lingering uncertainty around federal tax credits inhibited broader adoption. For now, hybrids hold a decisive edge, satisfying the desires of consumers seeking both affordability and efficiency.
Trends to Watch
As we move forward into the remainder of the year, CarGurus identified several key trends that will warrant close attention:
- Sustained Demand or a Slowdown: While the tariff-induced sales surge provided short-term gains, it remains to be seen whether this will lead to weaker demand in the summer months, or if the market will maintain its momentum.
- Pricing Fluctuations: Automakers have managed to keep prices in check thus far, but this could change as incentives expire and cost pressures mount. Significant price increases may arrive as new 2026 models are introduced in late summer.
- EV Tax Credits: The uncertainty surrounding federal EV tax credits adds more uncertainty to the market. Changes to credits could significantly influence consumer behavior and automaker strategies.
- High Interest Rates: Tariffs and economic pressures are likely to keep auto financing rates elevated, affecting both buyers and dealers as the cost of borrowing remains high.
Given these challenges, adaptability and strategic planning are key. Dealers and OEMs must continue to monitor shifts in inventory and leverage tools like data-driven pricing strategies to respond effectively to market changes.
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