Auto Market Downturn

Shifting Gears

The American auto market might be in for a rocky ride, potentially facing its steepest decline since the COVID-19 outbreak. This isn’t just due to empty showrooms; a mix of new international trade policies and supply chain hiccups are setting the stage for a downturn in vehicle production and sales that could echo into 2025 and beyond.

Missing Models

Among the first visible effects of this shift may be the absence or postponement of eagerly awaited models like the Kia K4 and the next-gen Hyundai Palisade. Analysts are suggesting a potential dip in global vehicle production by more than 1.55 million units in the upcoming year. S&P Global Mobility forecasts total new vehicle production could reach only about 87.91 million units by the end of 2025. That suggests a 2% slip from this year, marking the second yearly decline since the 2020 pandemic hit the brakes on the industry.

Trade Impact

So, what’s driving this slowdown? A substantial factor is the new auto tariffs imposed by the Trump administration. A hefty 25% tax on all vehicles and parts not made in the U.S. has rattled foreign automakers. Companies like Audi, Aston Martin, Land Rover, Bentley, and Polestar, traditionally reliant on overseas production, are rethinking their American operations. They’re pulling back on imports and focusing on what’s already stocked stateside.

Local vs. Import

To put the situation in perspective, Japan alone ships around 1.4 million vehicles to North America annually. The anticipated shortfall could wipe out that volume, affecting everyone from car buyers and dealerships to the aftermarket industry. The U.S. government has responded by promoting increased domestic production. Names like Volvo, Honda, Mercedes-Benz, and Nissan are on board, planning to boost American manufacturing efforts. Nissan, for instance, will start building the Rogue in America. But insiders admit these shifts won’t happen overnight.

Cost Consideration

Ironically, making more cars domestically doesn’t automatically slash prices. Half of all cars sold in the U.S. are imports, and even domestically produced vehicles often lean heavily on imported parts—up to 60% in some cases. While easing taxes on raw materials like steel and aluminum help, tariffs and rising labor costs might make American-built cars pricier than imports.

Labor and Jobs

The downturn’s impact extends beyond statistics, directly affecting workers. S&P Global anticipates a possible 3% drop in U.S. sales this year, matching the expected 9% decline in North American vehicle output. Such declines often lead to job cuts. For example, soon after the tariffs were enacted, Stellantis temporarily laid off 900 workers and paused production at two plants outside the U.S. following a sharp 14% drop in first-quarter sales compared to the previous year.

Looking Ahead

As automakers, suppliers, and policymakers weather these changes, the next few months could be decisive. Whether it’s through reworking trade agreements, ramping up domestic production faster, or forming strategic alliances, the auto industry will need to adapt swiftly to dodge a prolonged slump with enduring impacts. For those anticipating a new vehicle, the choices might be slimmer, and the price tags a bit heftier.