The New Car Market Split: Winners, Losers, and What’s Next for 2025

The new car market in 2025 is showing significant shifts, with certain segments of the industry thriving while others face challenges. Recent feedback from over 300 dealers across the country revealed that luxury vehicle buyers continue to spend, despite economic concerns, while middle-class buyers are increasingly hesitant, leading to shifts in demand. This is creating a split in the market, with certain segments seeing growth, while others are in decline.

Winners: Luxury Vehicles and Compact SUVs

Luxury vehicles have proven resilient, with $80,000+ sales rising 37% year-over-year. This growth is driven by high-income consumers who are less affected by the broader economic pressures faced by middle-class buyers. Automakers in this segment are offering advanced powertrains, cutting-edge technology, and customization options, which appeal to affluent buyers willing to pay premium prices for the latest features.

However, despite the strong performance in the luxury vehicle market, compact SUVs and midsize pickups are becoming increasingly popular. Compact SUVs like Toyota’s RAV4 have surpassed larger vehicles such as the Ford F-150 as the best-selling car in America. The shift toward smaller, more fuel-efficient vehicles is evident across many regions, particularly in states with high levels of EV adoption where fuel efficiency and affordability are prioritized. This growing demand for compact SUVs is changing the landscape for automakers, who are beginning to adjust their production strategies to meet these changing consumer preferences.

Losers: Middle-Class Buyers and Midsize SUVs

While the luxury vehicle market is thriving, middle-class buyers are facing greater financial pressures. Auto loan delinquencies have reached near 15-year highs, signaling that many consumers are struggling with the higher costs associated with new car purchases. This trend is pushing auto lenders to tighten credit availability, making it more difficult for middle-class consumers to secure financing for new vehicles. As a result, many are postponing or scaling back their car purchases.

Midsize SUVs and sedans have become some of the biggest losers in the current market. Despite offering good fuel efficiency and a reasonable price point, these vehicles are no longer the preferred choice for many buyers. As consumers seek more affordable and efficient options, they are increasingly gravitating toward compact SUVs, which offer the same benefits but with more flexibility and functionality.

In addition, the cost of new vehicles has steadily risen, with prices for new cars continuing to climb as manufacturers face increased production costs and the impact of inflation. Consumers in the middle-income bracket are feeling this pressure, and many are turning to used cars or opting for more budget-friendly alternatives.

Inventory Issues and Price Pressures

Inventory levels are playing a significant role in shaping the market in 2025. While some automakers, like Toyota, have successfully kept their inventories tight and maintained control over pricing, others are facing the challenge of overstock. For example, Ford’s F-150 has been sitting on dealer lots for longer periods, prompting the company to offer discounts and incentives to move inventory. However, this has led to lower profit margins, and Ford is not alone—many automakers are seeing similar pricing pressures as the market becomes increasingly competitive.

On the flip side, GM and Stellantis have started to discount older stock, with some success. The decision to cut prices or hold firm will depend largely on the future trajectory of demand. If the market rebounds, automakers may be able to recover, but if the consumer market continues to shrink, these price cuts could become even more common.

The EV Market Faces Setbacks

While the EV market had seen rapid growth in previous years, 2025 is expected to bring a slowdown. The retail share of EVs is projected to remain at 9.1%, signaling that explosive growth may no longer be sustainable in the near term. This slowdown is attributed to two main factors: the potential repeal of federal EV tax credits and economic challenges faced by consumers. The Trump administration has targeted the repeal of federal EV tax credits, particularly the leasing loophole that has helped make EVs more affordable. If these credits are reduced or eliminated, the affordability of luxury EVs could suffer, which may lead to a decrease in lease demand for manufacturers like BMW, Mercedes, and Audi.

For mainstream EV models, the removal of tax credits could make them less affordable, further slowing adoption. As automakers prepare for the transition to electric vehicles, they must also contend with the economic realities of high vehicle prices and consumer reluctance to adopt new technologies at a higher cost.

What’s Next for the Car Market?

Looking ahead to the rest of 2025, the new car market will continue to experience transitions. The luxury vehicle market is expected to remain strong, while compact SUVs and midsize pickups will likely continue to dominate. Midsize SUVs and sedans will likely see further declines, as buyers seek more affordable and fuel-efficient options.

For the EV market, there will likely be growing pains as the transition to electric vehicles faces challenges related to pricing, supply chain issues, and tax credit reductions. Automakers will have to adapt quickly, focusing on affordability and expanding options to meet diverse consumer needs. It remains to be seen how the federal government’s actions, such as revisions to the EV tax credit, will impact the market’s growth in the years ahead.

Overall, 2025 will be a year of transition for the automotive industry. Automakers will need to carefully navigate shifting consumer preferences, rising vehicle prices, and an increasingly competitive market. The outcome will depend on how quickly manufacturers can adapt to these challenges and keep up with the evolving demand for electric vehicles.

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