Car Prices Creep Up as Tariffs Hit, and EV Incentives Could Change the Market

A Strong Start to 2025 Shows Signs of Cooling

The first half of 2025 saw solid momentum in the auto market, fueled by a wave of early-year buying ahead of new import tariffs. March and April were especially strong, with the seasonally adjusted annual rate briefly topping 17 million units — levels not seen in years. But as pre-tariff inventory started to dwindle, demand began to ease and price pressures became more apparent.

EV Shoppers, Heads Up: Your Federal EV Tax Credit Is About to Expire

Electric vehicles have seen steady growth in recent years, with 28 consecutive months of inventory expansion and 72 models available in the first half of 2025 — a 38% increase in model availability compared to 2024. But big changes are coming fast.

The $7,500 federal EV tax credit — a major reason buyers have taken the EV leap — is set to expire in September along with the credit for used EVs. According to a Cars.com survey, over 50% of EV owners and lessees said the tax credit was a key reason they picked their EV, and nearly half of current shoppers say it’s driving their decision today. The credit has improved affordability and helped lower monthly lease and loan payments, making EVs more accessible for more people.

With new EVs averaging $65,000 — about $16,000 more than a gas-powered vehicle — and used EVs coming in around $36,000, the credit helps close a meaningful affordability gap. In both cases, the incentive can bring new models within reach or boost the value proposition for used buyers.

Tariff Impacts Are Starting to Show

Tariff announcements in February and March had an immediate effect. Dealers rushed to stock up on inventory before auto-specific tariffs took hold in April, especially on imports from Europe, Japan and Mexico. Now that pre-tariff supply is thinning, price increases are kicking in across the board.

The average vehicle price rose $97 industrywide between January and July, but the increase varied widely by country of origin. Tariff-related pricing impact is a mixed bag and varies by country. Imports from the U.K., a segment that accounts for just 1% of available inventory, saw the most significant jump of more than $10,000. EU imports, which makes up approximately 5% of inventory, rose by almost $2,500. Meanwhile, prices fell for vehicles from China, Canada, and South Korea. 

On a positive note, new U.S.-built vehicle prices are down nearly $200 on average. According to Cars.com data, more than half of consumers say tariffs have influenced them to seek out American-made vehicles, and over 73% would consider buying U.S.-built vehicles to avoid added costs.¹ As affordability concerns persist, consumers are turning to tools like Cars.com’s American-Made Index, which helps shoppers know which vehicles contribute most to the local economy. 

New-Car Sales Were Strong — But Headwinds Are Forming

New-car sales rose 3.9% year over year in the first half of 2025, supported largely by the March and April buying surge. The SAAR hit 16.3 million, and inventory expanded 5.6% YoY. But that pace of growth is beginning to slow.

Automakers are reassessing production, replacement rates are down, and incentives touted after the tariff announcements are being pulled back — moves that could limit accessibility for some buyers. While average turn on dealer lots reached 76 days in the first half of 2025 (up YoY but down 10% from January), automakers like Ford, Toyota, Honda, Hyundai and GM are still turning inventory faster than the industry average. Stellantis, meanwhile, adjusted prices on Jeep and Ram to help clear older stock.

It’s Getting Harder to Find Entry-Level Cars

The average new car may still cost $49,000, but beneath that number, the landscape is shifting. Most of the stability came from early-year incentives and leftover pre-tariff stock. As that runs out, prices will likely rise — especially in the most budget-friendly segments.

Inventory of new vehicles priced under $30,000 — the most tariff-sensitive segment — averaged 13.6% share in the first half of 2025. This is down significantly from 2019, when entry-level vehicles made up 38% of the market and reflects the third consecutive month of declines. With 92% of these vehicles built outside of the U.S., tariffs are disproportionately affecting this entry-level tier, which relies almost entirely on foreign-built vehicles. Only two models in this segment are built in the U.S. – the Honda Civic and Toyota Corolla – while some are also produced in Japan. While overall new car units grew 5.6% year over year in the first half of 2025, the entry-level segment lagged behind at just 3.9% growth in the same time period.

The mid-range new car segment ($30,000 to $49,000) accounts for nearly half of all inventory — and within this tier, 50% of the vehicles are imported. Within the $70,000-plus new car segment, the share of imported vehicles increased from 40% in May to 41% in June, suggesting automakers are adjusting to tariffs.

Used-Car Supply Jumps Thanks to Trade-Ins

Tariff pressure didn’t just affect new vehicles — it created ripple effects in the used market. The March-April buying surge led to a wave of trade-ins, boosting used inventory by 2% YoY, with most of that growth happening in the second quarter (+4.7% YoY).

That influx included newer trade-ins that moved quickly. Days live for used vehicles dropped to 52 days, with even sharper declines in Q2. Prices, which average $35,629, fell 0.9% YoY in Q1 and bounced up 1.6% YoY in Q2, showing how quickly shopper behavior shifted.

The sweet spot right now? Used cars priced between $20,000-$30,000 — they offer the best balance of affordability and condition, and they’re flying off lots.

<sup>1 Cars.com Consumer Survey; May 28-June 6, 2025; 997 respondents
2 Cars.com EV Shoppers and Owners Study, May 21-June 17, 2025; 1,059 respondents
* Cars Commerce internal data</sup>