"Party's Over": Auto Sales Sputter After Tariff-Fueled Surge

The auto sales slowdown that emerged in June is largely a result of the spring surge when consumers rushed to buy new vehicles before tariff hikes took effect. This surge was sparked by President Trump's escalating trade war and new tariffs on trading partners, causing consumers to buy before prices climbed. According to J.D. Power, Q2 sales were up 2.5% year-over-year, but the momentum quickly fizzled with the annualized sales rate dropping to 15 million units in June. This is the slowest pace in 12 months, down from April's 17.6 million pace, indicating a significant slowdown in the auto sales market. Jonathan Smoke, chief economist for Cox Automotive, stated that the party is over and the market is slowing due to worsening affordability and expected production declines. The average cost of a new car is rising, up 1% in June from a year ago to $48,799, which is a 28% increase compared to 2019 prices. Cox data shows that higher vehicle prices are coming to the new vehicle market, driven by the impact of tariffs, which will further exacerbate affordability concerns. The Manheim Used Vehicle Value Index is rising again, indicating that used cars are being chosen as substitutes for new vehicles amid ongoing concerns about affordability. Despite the challenges, there is some good news, as Goldman's Jan Hatzius expects the Federal Reserve to begin cutting interest rates in September, which could help alleviate some of the pressure on the auto market. Overall, the combination of high prices and affordability woes is expected to continue to negatively impact the automobile market throughout the summer.