The Great Car Buying Bonanza Is (Probably) Over

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2:03Ford, General Motors, Honda all had good quarters. Actually, Toyota did as well. David Welch is Bloomberg's Detroit bureau chief, and he's been tracking that sales data closely. There were winners, David says, and there were losers. Stellantis had a tough quarter. Nissan had a tough quarter. Both of them have had pre-existing problems, but they didn't seem to capitalize on consumers running the dealerships as much as the others. And, of course, Tesla down 13 percent. Very tough quarter for them. David says what we're seeing now with the auto industry is a new chapter in a story that started a few years ago.

2:36The reason for the price hike, too few vehicles for sale during the pandemic and too many buyers. I don't know how anybody can afford paying as much for a vehicle or a truck as a house. And that run up in prices has intensified because of the ongoing trade war. What we're going to be doing is a 25 percent tariff on all cars that are not made in the United States. If they're made in the United States, there's absolutely no tariff. That was President Trump back in March. The introduction of new tariffs started what David calls a buying bonanza. Americans wanted to get their hands on a new ride before prices got even higher.

3:14We're hearing reporting that a lot of consumers are front-running the implementation of these tariffs. But what this week's figures show is that surge in sales couldn't last forever. Astoria's consumers raced out to get ahead of the tariffs, and they did just that. So you had a bonanza for car companies in April and May, but you had a hangover from it, some payback in June, when the tariffs actually went into place. And everyone who bought, not everyone, but a lot of the people who bought had already gotten their car and didn't need to go. And so you saw sales really gear down that last month.

3:54I'm David Gurra, and this is The Big Take from Bloomberg News. Today on the show, it's a nobody's market in cars. why consumers, dealers, and manufacturers are all bracing for tougher times ahead and what that means for you if you're in the market for a new car this summer.

4:14Right after the largest car makers reported sales numbers for the second quarter this year, for April, May, and June, I sat down with Bloomberg's David Welch. Before we dug into the details, I asked him for the big picture on those reports. It was a pretty solid quarter, actually. You had a lot of people racing to buy cars in April and May to get ahead of tariffs that were going to be put in place. Those people did manage to avoid some extra costs from that. And then you had the payback in June. Some companies were down, some companies were up just a little. So it tells you that people, once they got the cars they needed and the tariffs came out, there was a big payback for all of that bonanza buying that went on early in the quarter.

4:56So it's not a stretch to say, looking at these sales data, that this is a tariffs story. It is. You know, consumers aren't dumb. I think Trump put in a lot of tariffs in place on different goods in his first term. And I remember when he put tariffs on the EU, I remember seeing people running out to buy wine because it was sort of publicly out there that French and Italian wines were going to get hit with tariffs. And so it makes more sense with a big purchase than it does with a bottle of wine, because depending on what the car companies are going to try to pass through, but you put 5 % on an average price of a vehicle close to$50 ,000, that's real money.

5:33David, I confess as a journalist who covers this day in and day out, it is hard to keep track of what tariffs are in place, what have been put on pause, what may or may not be coming down the line. Can you just describe the trade environment that car manufacturers are having to deal with right now? Yeah, it's tough. So the big ones for this market, I should say the most common ones, would be Mexico and Canada. So you've got some big tariffs on the non-U.S. content in those cars. So if the cars themselves were made with a certain amount of parts that are either made in the U.S. or made at a certain wage level, then they qualify for USMCA.

6:16They come over here with a minimal tariff, but the parts in them that were not made in the U.S., there's still a tariff on those. So vehicles made in Korea, made in Japan, made in Canada or Mexico get hit with some pretty big tariffs. You haven't seen companies pass along a lot of that cost yet. They've been sneaking in some price increases or just cutting some of the discounting, rebating, 0 % financing deals that they had in the months leading up to implementation of the tariffs. But right now, they're basically eating it out of their bottom line. So second quarter earnings will be very interesting for a lot of these companies.

6:51And I think the reason they're doing that is they're waiting to see what happens with trade negotiations. You know, there's the whole, you know, taco, Trump always chickens out. So there's that. And also, if you're General Motors, Hyundai, Kia, or Toyota, you're not going to make any big change. They'll wait and see what trade deal comes out. I'd love to shift from what manufacturers are doing to how consumers are doing in this moment. So I'm interested in the consumer psychology of car buying in this environment. What are they dealing with? And you mentioned that buying Bonanza a few minutes ago.

7:24How are they dealing, yes, with these tariffs, but also with higher interest rates and kind of the broader economic environment's challenges? Look, all of that's a big problem. Affordability has been an issue in the auto industry for a while. What happened during COVID semiconductor shortage is you had shortage vehicles. So the car companies just got rid of all discounts. They were steadily raising the sticker price on vehicles, and the dealers in some cases were gouging. But in most cases, the dealers didn't have to bargain because they didn't have a lot of inventory. They sold them at sticker price.

7:59And what the auto industry discovered was if they made fewer vehicles and sold them at higher prices and paid fewer people to do it, their profits were better. And they've tried pretty hard to stick to that ever since. So bottom line is even if car companies wanted to push price increases in in order to make up for what they're losing on tariffs, it's really hard to do it because consumers are already beset by high interest rates, high prices, and they're kind of pushed to the limit. Yeah, this driver of a 2015 Honda Odyssey was surprised to see the average price of a new car is$48 ,000. I mean, there have been substantial increases, it seems.

8:36The used car market is not the great refuge that it was in years prior. So if you need to drive, your choices are spend more when you go buy it, or just keep paying the repair shop and keep it going until maybe something breaks. What story are we being told by these companies about the state that they're in right now? Ford had a good quarter, although it was against a pretty weak comparison a year ago because they had some production issues. But they had solid numbers. Honda had a pretty good quarter. They've been really gaining market share lately. General Motors has been gaining a fair amount of market share lately.

9:13That was the bugbear for the company for decades. They're selling a lot of EVs. they vowed that they're not going to put in price increases while they're dealing with these tariffs and they're going to start building more vehicles in the U.S. So I think they see an opportunity to, if they keep their prices where they are, continue to pick up market share while others are maybe in a sneaky way taking away some of the discounts. Because they know some of their competitors, particularly Toyota, are more exposed to tariffs than they are. You do have your waggers here. Stellantis and Nissan continue to struggle.

9:50They're having problems. We haven't talked about Tesla yet, and that company reported sales numbers on Wednesday morning. Global sales down 13 percent from a year ago. As you look at those numbers, is the story they tell a similar one, a unique one? How should we think about Tesla in the context of the broader car market? I think Tesla's story here is pretty unique. they have frankly a pretty stale product line and that's not me writing car reviews about Tesla saying I think the cars are stale the Model Y is pretty fresh and it just hasn't really given them the big sales boost that they need to stave off this this decline so if you look at the four models that Tesla sells the most of the Model S sedan Model X kind of a crossover SUV Model 3 their smaller sedan model y they're sort of stylistically different sizes of the same sausage right so even though there's a new model y and it's got some better technology and so forth it doesn't tell consumers that there's something really new here you also have the cyber truck that's clearly a niche vehicle one because it's expensive and two because it's it's it's a stylistic oddity let's face it um so that hasn't moved the needle for them and they haven't gotten out the really inexpensive Tesla that they've been talking about, the Model 2.

11:10So they're kind of stuck in this situation where they've got a pretty stale lineup.

11:17After the break, what this slowdown in sales signals for manufacturers and what potential car buyers might expect to see as tariffs hit companies' bottom lines.

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13:47As cars have gotten more expensive, car makers have relied on incentives. A big one has been a tax credit for electric vehicles that was part of the Inflation Reduction Act, a$7 ,500 tax credit. That's been in place since 2022. But the Senate version of the tax and spending bill does away with it. Bloomberg's David Welch says that poses a real threat to an industry that's already vulnerable. In China, you've got BYD and the domestic car companies with very good electric vehicles really surging. And the European automakers themselves have good EVs and do pretty well. Competition stuff there in North America.

14:24Ford had a particularly terrible quarter in EV sales, but General Motors is coming out strong. Hyundai and Kia are both very competitive and have good product. It's not the oligopoly or near monopoly that Tesla had five or six years ago in the U.S. market. You know, there's something else obviously going on with the politics of Elon. And I've seen some research that suggests that as high as 80 % of EV buyers are, let's call it, somewhere left of center politically. They're not going to buy a vehicle from Tesla because of Elon. Not every one of them, not everybody really follows what the CEO does.

14:58But Elon was actually working with the administration. And I think he did turn away a lot of buyers. And that's really hurt them. What would that mean just quickly for these car makers? And you and I have talked before about the challenges facing carmakers who make up electric vehicles. If that tax credit is phased out, as it is in the Senate version of this bill, what does that mean for a GM, for a Ford, for companies that have more than dabbled in electric vehicles lately? Look, it's really tough. You know, this is a$7 ,500 tax incentive. Not every vehicle qualifies, but I think the ones that would be affected by this the most are the buyers who are most sensitive to this.

15:35You take something like a Chevy Equinox, that's GM's fastest growing electric vehicle. You can get in one for$35 ,000 and it gets over 300 miles of range. And it's a pretty nice little vehicle. And right now I think that's the vehicle for the non-rich person who wants to go electric. That vehicle was$27 ,500 after the tax credit. Now it's back up to$35 ,000. General Motors is racing to reduce costs for its electric vehicles. Everybody is because the vehicles themselves are going to have to stand on their own two feet in the marketplace, sell based on the price, and the companies are going to have to either reduce losses or try to make money on them.

16:14There was an ominous line in our coverage, I'll quote from it. With already high car prices expected to rise further as automakers manage billions of dollars in tariff costs, it may only get worse from here. What does the forecast look like for the second half of 2025? It's not good. Most of the forecasters are looking for even more payback than we saw in June, because there was some buying ahead in those months. But also, I think what a lot of them are looking at is we could get more clarity in the second half on tariffs. And clearly, Trump is going to keep some tariffs in place. So let's say he gets a deal with Japan and Korea.

16:56Maybe it's not 50%, but maybe it's 10 or 15%. And then the companies will start to adjust to that. They can't move production immediately. So maybe they start raising prices and, uh, and parts makers also start raising prices and eventually they try to push this through to consumers. I thought General Motors moved to invest$4 billion and move production to the U S from Mexico was instructive in the sense that they've got people talking directly to Trump himself and the Trump administration. So I'm not saying they've got a perfect read on what Trump's going to do because he's very unpredictable, but they got enough of a read on the permanence, I think, of these tariffs.

17:38And to announce this$4 billion investment in moving a lot of production back to Mexico, that's going to take them two or three years to do. That tells me that the Trump administration said, yeah, we're keeping this stuff in place, so deal with it. And that's how they're dealing with it. If you look at all of these manufacturers and how they operate, are there ones that are better positioned to weather these tariffs than others? And I guess vice versa, are there those who stand to have more trouble than other manufacturers? I think Honda and Ford are very well positioned for this. GM, they've got a problem.

18:13Almost half their sales came from someplace else. Toyota's got heavy tariff exposure here because they get about half of their sales coming from Japan. Look, the Europeans, they had moved a lot of production to Mexico for proximity and because of USMCA. But that's all been kind of blown up. As these tariffs come into effect and stay into effect, are consumers going to be aware of how high they are and how they're affecting the prices? In other words, I think back on when there was that minor tempest involving Amazon where they were going to list how much prices were up because of tariffs. Are car companies going to do something similar, do you think?

18:49Are we going to see on a bill of sale, for instance, you're paying X in addition because of the way that these tariffs are affecting the bottom line at these companies? I don't think they'll have that kind of transparency into it. What consumers will just notice is they were shopping for some vehicle a couple months ago and they look now and it's even more expensive. Where they tend to pick up most of this is basically news reports reported by us, reported by our competitors and reported on TV that prices have gone up. And even if they don't know the exact amount, they just know that, broadly speaking, cars have gotten expensive and that they've got to either put off that purchase or go out and buy something before it gets even worse.

19:28And then they start to really do their research.

19:34This is The Big Take from Bloomberg News. I'm David Gurra. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you liked this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.

20:15So healthcare is connected, not complicated. What's that look like? Cheaper prescriptions that are easier to get and care that looks at the whole person. How you need it. Optum is helping make healthcare work as one for everyone. Learn more at business.optum.com. This is Robert Smith from Business History. If you're listening to this, there's a good chance you're a small business owner. And like every small business owner, you started with a dream to do what you love and watch it grow. What you probably didn't dream about? Keeping up with cyber threats. That's where MasterCard can help, with access to tools that help identify cyber threats to better protect your business.

20:50Building your dream business? Priceless. For cybersecurity in a changing world, there's MasterCard. Learn more at MasterCard.com slash smallbusiness. At Edward Jones, we believe rich is more than caring about the latest and greatest. It's also taking care of what gives your life meaning. That's why your dedicated financial advisor meets you where you are with personalized financial strategies that help protect what matters so you can preserve your progress while creating a path forward. The key to being rich is knowing what counts. Let's find your rich together. Edward Jones, member SIPC.