#USA #Chicago #Cars Commerce #Affordability #new-vehicle sales

Robust Q1 Automotive Sales Amid Affordability Concerns

The automotive market in the first quarter of 2025 showcased a resilient performance with new-vehicle sales rising by 4.8% year-over-year. This year marks a significant rebound, particularly highlighted by the month of March, which recorded one of the highest sales in nearly fifty years. Despite this commendable resurgence, deeper analysis reveals a troubling trend regarding vehicle affordability, which is crucial for many consumers who view car ownership as a necessity rather than a luxury.

According to the latest Industry Insights Q1 Report by Cars.com, a technology-driven company focusing on automotive solutions, vehicles priced under $30,000 now represent only 14% of the new-vehicle inventory. This stark decline from 38% during the 2019-2021 period indicates a sharply eroding access to budget-conscious models. The predominant challenge stems from ongoing supply chain disruptions, specifically the lingering effects of the pandemic-induced semiconductor shortages.

David Greene, an analyst with Cars Commerce, articulated the ramifications of these changes, stating, “For many Americans, a car isn't a luxury — it’s an essential part of daily life. If entry-level vehicles become unaffordable due to new tariffs, the consequences for both the automotive industry and the broader economy could be significant.” The fact that nearly 90% of the vehicles priced below $30,000 are manufactured outside the United States exposes them to potential price hikes or production halts as trade policies shift. Alarmingly, only three models in this bracket — the Honda Civic, Toyota Corolla, and Chevrolet Malibu — are built domestically. The Malibu, however, is marked for discontinuation in 2026.

Details of Q1 Performance

The strong sales performance in Q1 2025 indicates that demand remains robust, driven primarily by consumers rushing to purchase vehicles before any tariff-related price increases take effect. March sales reached extraordinary levels, spurred by seasonal tax refunds and substantial incentives offered by automakers. Inventory levels have shown considerable improvement since the height of the chip shortages, with new-car supply increasing by 9% year over year. On average, vehicles now spend around 78 days on dealer lots, a number that mirrors the stability seen prior to the pandemic. Nevertheless, prices for new vehicles remain elevated, with the average price holding steady at about $49,000 — a steep 30% increase from the first quarter of 2019.

Challenges in Financing

Adding to the affordability dilemma, financing conditions have tightened. While the Federal Reserve's recent cuts in interest rates by 100 basis points in late 2024 aimed to encourage borrowing, car loan annual percentage rates (APRs) have nonetheless climbed by 19 basis points year over year during Q1 2025. Lenders are tightening their credit terms amid growing uncertainty in the market, creating additional hurdles for many prospective buyers. Greene points out that, “Even with more vehicles available, the path to car ownership is becoming more challenging, particularly for first-time buyers and those on tighter budgets.”

As the automotive market navigates these complex challenges—where buoyant sales figures are juxtaposed against the stark realities of rising prices and diminishing affordability—industry stakeholders must find innovative strategies to keep the essential entry-level market viable for everyday buyers. The full report elaborating these insights can be downloaded from CarsCommerce.inc.