Q1 2025 Review: Prices, Tariffs, and the Affordability Crunch

Affordability Remains the Market’s Center of Gravity

New vehicle pricing continues to be one of the most pressing challenges for both dealers and consumers. The transformation over the past five years has been dramatic. In Q1 2020, 37% of new vehicles were priced under $30,000. Today, that number has fallen to just 13%. Vehicles once considered mainstream are now brushing up against luxury price points, reshaping both buyer expectations and eligibility.

Further disruption may be imminent. Proposed tariffs set for April could eventually raise the average new vehicle list price by over $3,300 from about $49,500 today to approximately $52,800. The largest hikes could affect vehicles imported from Europe, Japan, and China. Our analysis suggests a dramatic shift in the inventory landscape if currently proposed and enacted tariffs take effect-creating a potential 42% decline in vehicles priced under $30,000 and a 15% increase in those priced above $50,000. Additional tariffs that are paused or are being discussed could further exacerbate vehicle affordability.

The shrinking entry-level segment is already narrowing the buyer pool-but tariffs could turn a slow erosion into a sharp contraction. For dealers, this creates a growing disconnect between available inventory and consumer affordability. OEMs will need to recalibrate toward more accessible trims, or retailers may find themselves holding slower-moving inventory that appeals to fewer buyers.

The bottom line: affordability isn’t just a consumer pain point, it’s a volume and turnover issue for the industry, especially with average days on market at their highest levels since the summer of 2020 and floorplan interest rates putting added pressure on dealers to move inventory.

Consumers Weren’t Rushing...Until Late March

Despite tariff speculation, consumers weren’t rushing new car purchases for most of the quarter, as evidenced by stable Days to Turn (DTT) throughout Q1 and little variation in sales distribution across regions. Consumers did turn up their interest post-tariff announcement on March 26, though, helping push the estimated new retail sales forecast up nearly 30% month-over-month, and about 15% higher than March 2024.

Still, vehicle-level demand tells a more layered story. Tight supply conditions at Toyota and Honda, driven by consistently strong sales and limited production, intensify competition for their popular models. Vehicles like the Toyota RAV4, with under 20 days of supply, and the Honda Civic at 42 days, illustrate this dynamic clearly. What ties these in-demand models together? They're largely affordable, fuel-efficient nameplates, suggesting that today’s buyers are prioritizing value, efficiency, and everyday usability.

Used Market Offers More Options-But With Trade-Offs

The used market still offers more pricing flexibility than new, but that affordability now comes with clear compromises. In Q1 2020, nearly two-thirds of used sales (64%) were under $20k. Fast forward to Q1 2025, and that share has dropped to just 43%.

This shift isn’t just about pricing, it’s about value for the money. Across nearly every price band, used vehicles are aging and accumulating miles, forcing buyers to accept significantly older vehicles with higher mileage to remain within budget-turning affordability into a clear compromise. Many of these vehicles fall outside certified pre-owned (CPO) programs, leaving buyers to weigh affordability against peace of mind.

In today’s market, shoppers aren’t just choosing a price-they’re choosing a trade-off: pay more for newer, lower-mileage vehicles, or accept more wear and tear to stay within budget.

EVs Quietly Make a Strong Case

While new EV adoption still faces headwinds, the used EV market is steadily gaining ground-especially among budget-conscious shoppers. Used EVs like the Nissan LEAF and Chevrolet Bolt, averaging under $17k with low mileage (~30,000 miles), are rapidly gaining attention as practical, budget-friendly alternatives to traditional internal combustion engine (ICE) vehicles.

And it's not just about price, it’s about how quickly inventory moves. In the sub-$35k bracket, used EVs are turning faster than comparable ICE and hybrid vehicles, signaling that when the value equation lines up, demand follows​. With affordability taking center stage in many purchase decisions, used EVs are emerging as a practical, low-mileage alternative in a market where trade-offs are becoming the norm.

What to Watch in Q2

With price hikes on the horizon, Q2 will be pivotal in showing how long the new car market can sustain demand and how the used car segment will fare if demand trickles over to the already constrained nearly new segment. Will OEMs adjust decisively towards affordable trims to protect volume? Will used EV momentum continue reshaping consumer choices? And most critically, how will consumers respond if the entry point to a new vehicle stretches even further out of reach?