Will the car market crash in 2025? Cars continue to get more expense every year. Since the pandemic, prices have increased an average of $10,000. Consumers can’t afford these vehicle and a price decrease is desperately needed. Manufacturers love the profit margins, but the business must change.

Overpriced models have flooded the car market, creating the prime conditions for a crash.

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Car market conditions are being impacted with higher insurance rates, and repossession rates are the highest ever, which means banks are less likely to give loans and leases to buyers. Additionally, inventory levels across all vehicle manufacturers, across all dealerships within the U.S. are the highest they’ve been in the last eight years. This all spells trouble for a possible crash.

Some dealers are getting desperate, as they are really having to get creative to move cars off their lots. Currently, there is a 23 percent increase in repossessions, insurance premiums have doubled, and monthly loan payments are sitting at an average of $760 and above. All of this means cars are becoming unaffordable for many buyers.

The types of vehicle sitting on lots may surprise you: new Toyota Tundras are sitting on dealership lots from over 200 days, up to 250 days. These used to fly off the lot within a few weeks. Now people realize they are too expensive and it prices them out of the market. The much higher price of $60,000-70,000 for a new Tundra or Tacoma gives consumer sticker shock.

The new Ford Explorer’s are sitting at around $80,000, which, considering that manufacturers have shifted production to Mexico, is wildly overpriced. All the new features and safety come at a price. People are shifting their purchases to the more affordable models like the Ford Maverick with an MSRP of $30,000.

All brands are loading up the top trim levels. According to Kelley Blue Book, the overpriced, overstocked car market does have a few silver linings. These include an increase in incentives designed to attract buyers. Averaging 7.7 percent, or $3,744, this is “the highest amount in over three years and about $200 more than September.”

What does this mean? It has created a buyer’s market for new cars. Kelley Blue Book reports that the number of automakers offering zero percent financing and other deals is increasing radically, with qualified buyers being able to secure deals like zero percent financing on non-hybrid models of the 2024 Kia Sportage.

Due to a lack of used vehicles, trade-in value has also increased. This is because 3 years ago we had a chip shortage and fewer vehicles were produced and those that were leased are coming off lease. Three years ago I reported that we would have a used car shortage in 2025, and here we are today. Used car pricing is strong, with less inventory available.

While a crash might be looming on the horizon, the good news is that the market is still too expensive for many buyers, the high interest rates and surplus of new vehicles have the potential to burst the market and drastically bring down prices.

The market for new cars is finally starting to turn in favor of individual buyers. Car prices could come down with increased inventory, over priced cars and lack of buyers.

Will new car prices actually drop in 2025? Watch for incentives and zero percent financing. 

While the two consecutive rate cuts have softened the market per Reuters economists, this could mean even better deals for car buyers in early 2025, as rate cuts tend to take time to trickle down meaningfully to consumers.

Cox Automotive chief economist Jonathan Smoke reiterated this prediction in a statement cited by KBB. “I expect the best time for lower rates will be by the spring… [Buyers] could see 1-1.5 points of further improvement, more on used vehicles.”

We predict a price drop of between 3%-5% in new car by the end of new year, and even if MSRP remains difficult to force lower, greater incentive programs to offset this should emerge, according to his analysis.

Expect to see more entry level trims and lower priced cars returning to the market. There is a huge demand for vehicles under $25,000. I also expect EV sales will slow way down without mandates and tax credits. The only exception being Tesla. 

We will keep you posted as prices change and other impacts to the auto industry.

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