The new vehicle market is beginning to normalize in May following a surge in tariff-driven purchases earlier this year.
According to J.D. Power and GlobalData, total new-vehicle sales, including retail and fleet transactions, are projected at 1,489,800 units, which is flat from May 2024 when adjusting for selling days. Retail sales alone were slightly up year over year, projected to reach 1,235,700, a 1.1 percent increase. The seasonally adjusted annualized rate of total sales is reported at 15.6 million units, 0.1 million lower than the previous year’s pace. Without adjusting for the extra selling day in 2025, total sales volume was up 3.4 percent, and retail was up five percent.
While sales are steady, some trends point to a softening market later this year. The pull-forward effect caused by consumers rushing to dealerships in spring is expected to present challenges as the year progresses. However, robust consumer demand and incremental increases in retail sales show that buyers remain committed to upgrading their vehicles.
“Following the surge in vehicle purchases in March and April, driven by the fear of tariff-related price increases, May sales reflect a more tempered market,” said Thomas King, president of the data and analytics division at J.D. Power. “While many May sales were made by shoppers who accelerated their purchases, the sales benefit is being muted by the payback from shoppers who purchased in March and April instead of May. Looking forward, the industry sales pace faces challenges on a number of fronts. For certain, sales pulled forward into March, April and May will become a meaningful headwind for the balance of the year.”
The Tariff Pricing Effect
Tariffs on imported vehicles and parts remain an ever looming factor in the industry. With an estimated cost increase of $4,275 per vehicle for certain models due to tariffs, manufacturers are carefully managing pricing strategies to avoid scaring away buyers. This caution is evident in May’s pricing performance. While the average retail transaction price for new vehicles rose $649 to $45,462, up 1.4 percent compared to May 2024, it actually dipped slightly from April levels.
“The threat of higher vehicle prices has yet to materialize in a meaningful way, said King. “While higher production costs will ultimately lead to higher prices on many vehicles, the fact that prices for consumers remain largely status-quo—for now—should not be surprising. The highly competitive nature of the auto industry, coupled with the fact that many vehicles currently in dealer inventory were produced before tariffs took effect, mean that manufacturers are taking a cautious approach to their pricing strategies.”
Electrification Is Evolving, But Progress Isn’t Linear
Electrification continues to slowly redefine the automotive market. Combined, hybrids and plug-in hybrids now account for 25 percent of retail sales, driven largely by automakers like Toyota and Honda transitioning their lineups to hybrid-dominant models. The new announced 2026 Toyota RAV4 will be exclusively a hybrid, showcasing an automaker-wide pivot to electrification.
That said, electrical vehicles are still facing headwinds. EVs accounted for just 8.1 percent of sales in May, marking their weakest performance since February 2024. This decline raises questions about consumer confidence and the industry’s ability to meet the lofty goals previously set for full electrification.
Consumer Spending Hits New Heights
Despite rising retail prices and interest rates, consumers continue to invest heavily in new vehicles. The average monthly finance payment in May reached $748, a new high for the month and up $21 from last year. Retail inventory levels have expanded by 23 percent year-over-year, and dealerships are seeing consistent profitability, with average per-unit earnings climbing to $2,502.
Part of this strong spending reflects the continued consumer preference for higher-end models like SUVs and trucks, which make up 81.9 percent of retail sales. The slight decline in fleet sales, which are traditionally less profitable for manufacturers, further highlights this shift.
“The strong sales pace, combined with high average transaction prices mean consumers will spend more money buying new vehicles this month than any other May on record—and the fourth highest of any month on record,” said King. “Consumers are on track to spend nearly $53.8 billion on new vehicles this month—7.0% higher than a year ago.”
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