With the national election now fully in the rearview mirror and consumer sentiment improving, we turn our attention to the year ahead and an automotive market shifting into a higher gear. As we develop our forecast for 2025, we are mostly optimistic, as the market is finishing 2024 with momentum.
There is no doubt that we have plenty of new uncertainty ahead. We know from experience that a Trump administration is anything but predictable, so our forecast here is offered with some caution. But the market’s current trajectory is positive indeed, and that trajectory should carry us through most of 2025. In the auto business, nothing changes quickly, despite what leaders in both automotive and government promise.
Forecasting is never easy, and we tend to focus more on the larger trends that will shape the market, less on the specific metrics. If this market forecast from Cox Automotive and my Economic and Industry Insights team feels a bit optimistic, that is by design. There are significant hurdles ahead, and profitability will be challenged; but the road into 2025 looks relatively clear. We have a market gaining momentum and economic fundamentals improving. Consumer sentiment is pointing in the right direction, and we feel ready for what 2025 might bring.
1. Enjoy the Ride: Market Growth Ahead
As we close out 2024 and look forward to the next 12 months, economic momentum is building as the election outcome has reduced uncertainty about tax policy and has contributed to stock market growth and an uptick in both consumer and dealer sentiment. This is a positive for our economy and the auto market.
The economic outlook for the year ahead is positive and more certain than in recent years, and the risk of a recession in 2025 is lower and much closer to what it would normally be in any given year. While 2025 is expected to see modest slowing, the expected growth of 2.6% is in line with the growth potential that is sustainable for the U.S. economy and is consistent with growth prior to the pandemic. It’s not too hot, not too cold, but just right.
At the same time, threats of tariffs and drastic immigration policies are alive and well, and significant action on either one could reignite inflation. Changes to the EV tax credits are also expected, although most shifts in policies will take some time to enact and ultimately be felt in the market, so the near term will be a continuation of the current positive trends, while worries about policy changes create urgency to buy now.
Consumer sentiment is improving thanks in part to an initial trend to lower interest rates and a job market that is stabilizing like the Goldilocks economy, just about right. In this environment, our forecast is for the consumer to be in good and improving shape in 2025 and healthy enough to sustain auto market growth in the year ahead.
2. Welcome Relief: Affordability Will Improve, but Remain the Industry’s Biggest Challenge
Vehicle affordability remains one of the industry’s biggest challenges, but it is expected to see more improvement in the year ahead. Credit availability should also continue to expand as loan portfolio performance improves and yield spreads narrow. The extent of the Fed’s cuts is uncertain, but at least a few are in store for the market in the coming months.
Even before loan performance showed signs of improving, we began to see auto loan rates decline as lenders have been willing to reduce wide yield spreads with greater confidence about the economic outlook and stability in used vehicle prices. As we head into 2025, average auto loan rates are a full point lower from their peaks earlier in 2024, and approval rates are increasing. This should be good news for business in the months ahead, but the path is not set. After some decline in the spring, rates could begin rising again. That risk is not entirely a negative in the short term, though, as it has changed the psychology. Waiting indefinitely for lower rates is no longer a good buying strategy.
New-vehicle inventory volumes will continue on an upward trend in 2025, which will keep incentives growing, and manufacturers will be incentivized to move metal ahead of any policy shifts. Wage growth is also expected to continue as unemployment levels stay in check, another tailwind for sales.
Automobile dealers have been telling us interest rates are a top factor holding back business for more than a year now. Relief is on the way. Consumer rates could be lower by another full point by spring. Yes, new vehicles remain expensive – suggested retail prices have jumped by nearly 25% in the past five years – but with sales incentives trending higher, auto loan rates trending lower, and household wages growing, affordability has been improving for a year now, and more improvement is likely in 2025. That is good news for the market and the year ahead.
3. Higher and Higher: Sales Growth Remains Slow, but the Trends are Positive
With growing new-vehicle inventory and improving affordability, we believe 2025 will be the best year for the market since 2019, with new-vehicle sales reaching 16.3 million units, an increase of 3% from 2024. Profitability will continue to be squeezed, but the consumer and economy will be healthy and supportive of growth. The retail used-vehicle market is also forecast to expand year over year in 2025, despite tight inventory. Used retail sales will likely hit 20.1 million next year, delivering the best year since 2021. It will be a positive year for the Manheim Index as well, with the index forecast to finish 2025 higher by 2.4%, suggesting used-vehicle values will grow at a normal pace.
Overall, Cox Automotive is optimistic about auto market sales in the year ahead, as we welcome the third straight year of growth. We are expecting a strong tax refund season, a healthy spring bump, and the most normal year since the pandemic for vehicle sales and depreciation patterns.
In 2025, we will be carefully watching used-vehicle inventories, as the wholesale market will see further tightening, with lease maturities and off-lease volumes declining another 600,000 as we lap the worst of the supply chain crisis. The CPO market is expected to struggle in 2025, due to a lack of inventory; but this will be the only dark spot in an otherwise bright forecast.
These collective conditions point to stabilizing dealer profitability, which remains much better than 2019, although admittedly below the unicorn years of 2021 and 2022. In 2025, the economic fundamentals will drive sufficient demand, and supply will remain relatively constrained. As such, our team is expecting predictable patterns for sales and depreciation, with more urgency among buyers contributing to strength and growth in every department at the dealership. Recent dealer sentiment measures suggest that dealers are starting to see these conditions fall into place. Momentum, at least in the near term, is building.
4. One in Four: Electrified Vehicles Go Mainstream in 2025
The U.S. market posted record electric vehicle sales in 2023 and will do so again in 2024. The growth in recent years has been slow and sometimes bumpy, but we remain firm in our continued belief that EV sales in the U.S. will follow a long-term growth path.
This past year, electric vehicle sales gains have been driven by brands not named Tesla, as the market leader saw lower volume year over year in 2024 and now accounts for less than half of the EV market. Tesla’s share of approximately 50% is still remarkable, but down considerably from the nearly 80% share in 2020. Tesla’s aging product line continues to be the biggest challenge for the company; discounts and promotions will go only so far in a hyper-competitive market.
In the year ahead, the U.S. market will see roughly 15 all-new EVs added – new models that did not exist in 2024 – and that will help drive even higher volumes in the market. Additionally, more hybrids and plug-in hybrids will grow electrified vehicle sales even further.
Cox Automotive is expecting that one out of every four vehicles sold in 2025 will be electrified. Electric vehicles will account for approximately 10% of the market total in the year ahead, up from roughly 7.5% in 2024. Sales volume will grow past 1.5 million in 2025. Hybrids and plug-ins will account for approximately 15% of the market and sales of pure internal combustion engine vehicles — ICE products — will tumble to 75% of total volume, the lowest level on record.
At this point, there is certainly speculation that the “leasing loophole” will be closed by the new administration; but that cannot happen immediately and might not happen at all. Everything is up for negotiation. Closing that loophole will hurt both lease volume and overall EV sales. But EV sales will likely spike ahead of the loophole closing, so the trade-off is hard to measure.
Tax incentives are helping grow EV sales, and new-vehicle dealers tell us consistently that the government-supported EV sales incentives are a net positive for the industry. It’s simple math – taking away a $7,500 discount is not a strategy to grow sales. If the IRA incentives are slashed, our forecast for EV sales in 2025 may shift lower. But with new product, sufficient sales support, and even more tax credits from states that are already having success, we still believe EVs can continue to gain share in the U.S. market.
Another reason we remain bullish on growing EV sales is an ever-improving infrastructure to support charging. Significant government and industry money is already flowing into the nation to expand the network, and even new leadership in Washington won’t slow that down in the year ahead.
Additionally, public and private partnerships are working to expand EV charging networks. In the U.S., more than 200,000 public charging ports are now available – an increase of 40% compared to two years ago. An industry consortium of nearly 30 companies has been established to enhance the reliability and usability of these stations. By the end of 2025, approximately 70% of heavily trafficked U.S. roadways will have a fast charger within 50 miles, up from 59% this year. Like EV adoption, the charging network’s expansion is slow and bumpy; but the trajectory is clear. And in 2025, we expect further expansion of both.
There will be changes to policy, of course, and those changes will influence demand and cause some declines to follow. Meanwhile, hybrids are likely to become even more important as a steppingstone for consumers while manufacturers hedge their bets on emissions targets and fuel efficiency standards. All told, we feel electrified vehicles will move into the mainstream in 2025, with one in four new vehicles sold powered by electricity in some way.
5. Better than Expected: Buyers Will Be Satisfied in the Year Ahead
Bottom line: We are optimistic about retail automotive in 2025. As we’ve noted above, car buyers can expect plenty of vehicle availability, competitive incentives, and for the foreseeable future, good news on auto loan rates. Retailers can expect healthy demand from capable buyers.
The process of buying a vehicle continues to improve. Our recent data suggest that satisfaction with the new-vehicle buying process is at an all-time high, with three out of four buyers being “highly satisfied” with the process.
Every survey our team undertakes shows a consistent theme: Buyers want the best of both worlds, a process that moves seamlessly between online and in-dealership activities – the same way hybrid vehicles move seamlessly between gas and electric drive. This omnichannel approach is being enabled by forward-thinking dealers and better technology, and that is helping make vehicle buying more efficient for everyone involved. And that’s driving higher satisfaction.
Importantly, dealers are getting the job done. When we talk about our optimism for 2025, we are not solely focused on volume and prices and economic factors that support the market. Our optimism is also buoyed by the excellent work being delivered by the larger automotive retail network. Yes, everyone has heard examples of a purchase gone wrong; but our recent data shows that 72% of new-vehicle buyers rated their experience at the dealership as “better than expected.” Highly satisfied consumers are the foundation of any market growth.
In many ways, where we sit right now, looking at the year ahead, “better than expected” might be a fitting view. We are optimistic about 2025 – there are plenty of reasons to believe it will be the best year since 2019.
We are looking forward to being with you on the journey ahead.
Jonathan Smoke
Chief Economist
Jonathan Smoke leads Cox Automotive’s economic and industry insights team, which tracks key metrics and trends impacting both the wholesale and retail markets for vehicles informed by the proprietary data from the company’s businesses and platforms. For 28 years, Smoke has focused on translating data and trends into relevant actionable insights for the industries that represent the biggest purchases that consumers make in their lifetimes: real estate and automotive. Smoke joined Cox Automotive in 2017.
