July 2025 Auto Sales Remain Strong Despite Tariffs Reshaping the Market

• July saw sales climb, but supply shrank. New-vehicle purchases rose 6.6% year over year even as dealer inventory fell 4.9% — the first drop in supply since 2022.
• Much of the July surge was driven by a “buy now” mentality coinciding with holiday sales promotions. Consumers who had been watching tariff headlines and policy debates may have decided it was safer to purchase in the summer than risk paying thousands more in the fall for certain vehicles. The looming end of the $7,500 federal EV tax credit for many electric models may have added another layer of urgency.
• Average new-car prices have stayed flat at around $49,000 for nearly two years. But the stability is artificial — propped up by automakers absorbing billions in costs rather than passing them on. 

New-Car Prices Could Outpace Household Income by Six to Eight Times 

The industry’s seasonally adjusted annual rate — the metric analysts use to measure the pace of sales if monthly trends held all year — hit 16.4 million in July. That’s up from 15.8 million in July 2024 and 7% higher than June when looking at actual sales. At first glance, the numbers suggest a healthy market. But in reality, July’s volume was less about economic strength and more about reactive purchasing by price-sensitive consumers. In the second quarter, automakers covered about $12 billion in tariff costs to keep sticker prices steady. However, automakers can’t absorb tariff costs in the long term, so once those costs start to roll into model-year 2026 pricing, buyers could be looking at paying thousands more for the same vehicle. 

If tariffs remain at a 25% rate, industry analysts estimate the average new-vehicle price could rise up to 13.5%, from $48,000 to $54,400 — about $6,400 more. Even if trade deals bring tariffs closer to 15%, prices may increase about $4,300, or 8.1%. While a smaller increase eases some pressure, vehicle costs are still outpacing household income growth.  Median household incomes grew 1% or $768 over the past year, according to data from the Atlanta Fed, meaning car prices are climbing six to eight times faster than income, meaning affordability will remain key.

That said, the overall industry average price has barely moved since January —up $59—due to a mix of domestic production and competitive pricing in some segments. Luxury imports saw the largest increase, with UK-built vehicles up $13,065 and EU-built models up $2,315, reflecting reliance on high-end imports like Land Rover, BMW, and Mercedes-Benz. Japan-built vehicles are up $444, showing some resilience, while U.S.-built vehicles saw a modest $619 rise since January. Prices are dropping for some imports, with Canadian-built vehicles down $1,853, South Korean-built models down $806, and Chinese-built models are nearly flat.

Tariff impact isn’t a one-size-fits-all. Premium imports are seeing the biggest price pressure, while domestic and nearby production provides some stability. For shoppers, that means opportunities remain in value-oriented imports and U.S.-built models —even as affordability stays front of mind.

Trim Levels Tell the Affordability Story

Vehicle trims — the different versions of a model with varying levels of features and equipment — offer another lens on the market’s affordability challenges. Entry-level trims, the most basic and affordable versions, hold steady at around 34% of inventory compared to the same time in 2024, offering some relief to price-sensitive shoppers.

Mid-level trims, historically the sweet spot for balancing features and value, are disappearing. Their share is down 6.4 points from early 2023 as automakers shift focus toward a mix of lower-priced trims to address affordability, offset by a larger mix of higher-margin configurations from fully loaded trims. Fully loaded trims, which cater to buyers less sensitive to price, are up 1.7 points year over year.

The erosion of the middle reflects the broader market dynamic: polarization toward either budget-friendly basics or high-end models, with fewer choices in between.

Used Cars Are Feeling the Pressure

When new cars get more expensive or harder to find, buyers turn to the used market. That shift is already underway. In July, used inventory was down 0.6% from the same time a year ago, but prices climbed 2.8% after more than two years of declines.

Used cars are also selling faster. The average days live dropped to 49 days, down 10.5% year over year. Affordable used models are moving quickest as buyers displaced from the under-$30K new segment search for alternatives.

EV Growth Slows Ahead of Incentive Expiration

The electric vehicle market is at an inflection point. Shoppers have more choices than ever, with 75 new EV models available — a 27% increase from last year — but growth in new-EV inventory has slowed to 9% year over year, the lowest since before the Inflation Reduction Act that revitalized Federal EV tax incentives.

Part of the slowdown is timing. The $7,500 federal EV tax credit ends Sept. 30. Analysts expect another buying rush before then, but without the credit and with tariffs affecting imported EVs, prices could rise sharply. Given that most new EVs are priced in the premium to luxury bracket, the loss of the credit could limit adoption to higher-income households.

The used-EV market is moving in the opposite direction. Inventory is up 33% year over year, with average prices down 2% to $36,000. Affordable models under $25,000 — like the Tesla Model 3, Nissan Leaf and Chevrolet Bolt EV — are selling 20% faster than average and often qualify for the $4,000 used-EV tax credit, which also ends Sept. 30.