The start of 2025 has a lot in store for the auto industry. While analysts are predicting gradual recovery growth, ongoing post-election policy discussions are fueling uncertainty in the market.
As the Trump administration’s plans take shape, it’s time for auto business leaders to get proactive about the year ahead.
What’s Next for the Auto Industry in 2025?
As Trump prepares to take office, the president-elect has been outspoken about many of the changes he plans to make. There are a few major proposals likely to impact the auto industry.
New tariffs
Since long before election day, Trump has been talking about imposing new tariffs to bring back American jobs– including in the auto industry. One proposed change was a 25% tariff on vehicles and parts from Mexico and Canada.
However, some experts predict that this measure could have a major negative impact, at least in the short term. For one, since tariffs are typically paid by the company purchasing goods, the 25% will likely be felt by American consumers as manufacturers aim to pass on their costs. Additionally, since Mexico supplies 42.5% of US auto parts, the impact would ripple across the supply chain, affecting domestic companies that rely on these imports.
Rollbacks on EV benefits
The future of electric vehicles (EVs) is another key issue in the 2025 leadership transition. Trump has criticized Biden’s EV push, promising to terminate the electric vehicle mandate on day one. He argues that government spending and mandates should not drive the market. Rather, the private sector should be responsible for driving innovation in that area.
While the Inflation Reduction Act has boosted EV sales and charging infrastructure, the future of EV tax credits remains uncertain. Some dealers are eager for EV growth to decline, making room for traditional gas cars. However, experts warn that removing these benefits could cause a decline in sales, as seen in Germany, and force dealers to offer significant discounts to move inventory.
Changes to the CHIPS Act
The CHIPS and Science Act, passed as a bipartisan law in 2022, aimed to strengthen U.S. semiconductor production with $52.7 billion in grants and tax credits. However, more recently, Trump has voiced concerns about the Act, suggesting it benefits wealthy companies. Instead, he advocates for tariffs to incentivize manufacturing without government funding.
While the future of the Act is unclear, some Republicans may push to repeal or streamline it. Experts warn that pulling back on these policies could lead to price increases in industries reliant on semiconductors, like the auto sector, and could cause supply shortages and longer wait times, similar to the 2020 semiconductor shortage.
How to Prepare for 2025
1. Hedge Against Supply Chain Disruptions
As tariffs loom on the horizon, global trade is in an uncertain state. That’s why it’s important for auto businesses to prepare for disruptions– particularly in the parts-heavy service industry.
To start, some business owners may need to adapt their approach to inventory management. While many organizations have adopted the just-in-time (JIT) strategy of ordering materials as they’re needed, supply chain disruptions may make this system more difficult to maintain.
In order to avoid shortages, some experts recommend temporarily switching to a just-in-case model, or keeping extra inventory on hand in case of shipment delays. In the case of significant tariffs, this can also help them avoid price increases on impacted supply.
Another recommendation is diversifying your supplier base, or securing backup options. Though working with a single trusted supplier might seem more efficient, building relationships with multiple suppliers across different regions provides flexibility when primary suppliers face challenges. These preparations may require initial investments, but they represent essential steps in building a more resilient business model.
2. Adjust Projections
If Trump’s major proposals go through, analysts expect to see relatively modest growth across the auto industry. S&P Global projects global new vehicle sales to increase by just 1.7% year-over-year to 89.6 million units. This conservative outlook reflects broader concerns about market challenges, including regional demand constraints and policy uncertainty under the new administration.
Some forecast that the new policies will result in a price increase across the board, ultimately leading to a decline in demand. Barron’s reports that new car costs could rise by up to 8% due to potential tariffs, potentially reducing annual sales by approximately 500,000 units based on patterns observed during the pandemic.
The electric vehicle segment appears particularly vulnerable, as the possible elimination of the $7,500 federal tax credit could effectively increase consumer costs substantially. Many dealers are consequently adopting a more cautious stance on EV sales projections for 2025.
The impact of tariffs may extend beyond direct consumer costs. Even US-manufactured vehicles could face price pressures if they rely heavily on foreign components. S&P Global’s analysis indicates varying levels of exposure across manufacturers, with Volvo and JLR showing higher vulnerability compared to BMW and Mercedes.
As dealers and lenders prepare for the year ahead, it’s important to take these effects into consideration. That way, you can target your efforts more strategically and focus on where you can have an impact.
3. Improve Targeting and Sales Strategy
While the impact of Trump’s proposals is difficult to predict, most experts agree on one result– auto prices will likely rise in the short term.
When prices increase, US consumers typically hold back on new purchases. In this case, that may mean forgoing a new car, instead signing a lease or servicing their existing cars to make them last. As the industry is predicted to see stretched demand, strategy is key to getting ahead and increasing sales.
In a difficult economic climate, it’s important to prioritize quality over quantity. In other words, rather than chasing after more leads, focus on making the most of your existing customer opportunities.
CheckMy Driver’s Driver Insights feature allows dealers, service shops, and lenders to gain enhanced information on everyone who comes through their dealership.
After verifying the customer’s insurance, you can get access to deeper information like occupation, vehicle details, and additional drivers in the household. This gives your sales and F&I teams better insights to reach out at just the right time and match them with a vehicle that best suits their needs.
Get Ready for a New Year in Auto
With 2025 just around the corner, now is the time to take action to start the new year ahead of your competitors. To learn more about how CheckMy Driver can work for your business, talk to our team.
You can also check out some more resources to getting ahead in 2025:
