Auto Market Thrives Despite Rising Inventories, Economic and Political PressuresAuto Market Thrives Despite Rising Inventories, Economic and Political Pressures

Fretting about possible tariffs that would impact the U.S. automotive retail market is understandable, but for now, J.D. Power reports strong market growth.

New-vehicle retail sales are projected to rise 8.1% in February 2025 compared to the previous year, according to a joint forecast from J.D. Power and GlobalData. Despite challenges such as rising inventory levels and affordability concerns, consumer demand remains strong, with total new-vehicle sales – including retail and non-retail transactions – expected to reach 1,243,700 units, marking a 3.5% year-over-year increase.

“Consumer demand for new vehicles continues to exhibit strength,” says Thomas King, president of data and analytics division at J.D. Power. “February marks the fifth consecutive month of year-over-year retail sales growth, with an 8.1% increase on a selling-day-adjusted basis. The strong retail sales pace and resiliently high average transaction prices mean consumers will spend more money buying new vehicles this month than any other February on record.”

Although January and February are typically slow months for vehicle sales, the current trend of rising new-vehicle retail sales, increasing manufacturer discounts and strong consumer spending suggests continued market strength. But that doesn’t mean things won’t change depending on geopolitical challenges and shifts in federal regulations. Those can quickly translate into affordability and supply challenges.

The Math and the Challenges

Retail sales alone are projected to reach 1,010,000 units in February 2025, an 8.1% increase from February 2024. When adjusted for the number of selling days, the growth equates to 3.8%. The seasonally adjusted annualized rate (SAAR) for total new-vehicle sales is expected to hit 16.6 million units, up 300,000 from February 2024, indicating steady market momentum.

While strong sales figures point to a healthy market, dealerships and manufacturers are navigating several challenges. Rising inventory levels are driving increased competition among retailers, leading to higher manufacturer discounts and shrinking dealer profit margins.

The average incentive spending per vehicle is expected to rise 22.8% from February 2024, reaching $3,227. This equates to 6.5% of the average MSRP, up 1.1 percentage point year-over-year. Meanwhile, total retailer profit per unit – including vehicle gross and finance and insurance income – is expected to decline 11.8% to $2,171. The percentage of new vehicles selling above MSRP has also dropped to 11.9%, down from 19.2% a year ago.

Fleet sales, another key revenue stream, are forecasted to decline 12.5% from February 2024. Fleet volume will account for just 18.8% of total light-vehicle sales, a drop of 3.4 percentage points from the previous year. The decline is attributed to manufacturers focusing more on retail sales, which are traditionally more profitable.

Record Consumer Spending Despite Affordability Concerns

Despite rising discounts, the average retail transaction price for new vehicles remains high, reaching $44,619 – an increase of $71 from February 2024. The combination of increased sales and stable prices means consumer spending on new vehicles in February 2025 is on track to hit $42.6 billion, a 2.5% increase from February 2024, setting a new record for the month.

But affordability remains a pressing issue. The average monthly finance payment for new vehicles is expected to be $738, up $17 from a year ago. The average interest rate for new-vehicle loans is projected at 6.80%, slightly down by 3 basis points year-over-year.

Trade-in equity is also declining, further deepening affordability concerns. The average trade-in equity is expected to drop $173 to $7,625, with 25.5% of new-vehicle buyers now having negative equity – up 2 percentage points from February 2024. This trend contributes to higher monthly payments and increased financial strain for consumers.

Vehicle Segments and Market Trends

Trucks and SUVs continue to dominate the market, accounting for 81.3% of new-vehicle retail sales in February. Incentive spending on trucks and SUVs is projected to reach $3,393 per unit, up $633 from a year ago, while spending on cars is expected to be $2,467, up $371.

In the used-vehicle market, prices have remained strong. The average used-vehicle price is projected to be $28,263, up $289 from a year ago. However, rising trade-in negative equity could impact the ability of consumers to move into newer models.

The EV Outlook: A Mixed Bag

Electric vehicle (EV, BEV and PHEV) sales saw a strong start in 2025, with EVs capturing a 9.8% retail share in January, up 1.4 percentage points from January 2024. Consumer interest in EVs is growing, with 29% of new-vehicle shoppers saying they are “very likely” to consider an EV, up 3.5 percentage points from a year ago. At the same time, those “very unlikely” to consider an EV dropped to 18%, the lowest level in more than a year.

But, again, the recently announced changes to federal tax incentives, infrastructure funding and various regulatory shifts may slow EV adoption. J.D. Power forecasts EV retail share to level off at 9.1% in 2025, though long-term projections still indicate an increase to 26% by 2030