Yesterday was the fifth anniversary of our local schools closing and sending everyone home. Hindsight being 20/20, we probably should have kept the schools open and closed the bars. For car buyers, there was a brief moment of lower car prices and lower interest rates. This was followed by a quick ascent in car prices as manufacturers couldn’t build more cars. The market has never really recovered if you’re a consumer.
The Morning Dump has been a little bleak lately and that’s solely a reflection of the actual world, so I’ve tried to counter the rest of the day with more upbeat stories about people racing RC cars. It’s the season of Lent and, for me at least, it’s a time of honest reflection. If I’m being honest, the automotive world and economy are in a strange place right now. Hopefully, this is just the bit of adjustment that leads to great days ahead.
As car prices have gone up, sales have gone down. Overall car sales in the United States are lower than before the pandemic, though it seemed like we were heading in the right direction in December. Unfortunately, all this Ross-and-Rachel/will-they-wont-they tariff nonsense and other government disturbance has stalled the market for an undetermined amount of time. Few automakers have been hurt as hard as Tesla, and we’re now getting our first look at Tesla sales data in the United States. The data isn’t good.
I am committed to not ending on a bleak note so… all of this appears to be leading to Germany, and in particular Volkswagen, remilitarizing. Now Volkswagen can make a little money in a new market to replace China. Remember nothing bad ever happens when Germany prioritizes military spending.
Car Sales Are Down 9%, Incentives Are Down 14%, ATP Is Up 25% Since February 2020
I think a lot of how you remember the pandemic is going to be based on your geography. Living just outside New York City and, specifically, living near one of the first “Containment Zones,” I remember the National Guard trucks. I remember having to wrestle with whether or not we should cancel the kiddo’s birthday party (we did, thankfully). Then I remember the stream of “In Memorium” emails as more and more people we knew perished. I remember the hassle and ultimate pointlessness of wiping down bags of tortilla chips. I try not to remember having to shield my kiddo from seeing the paramedics in a biohazard suit removing a neighbor from her house, certain that she, too, was going to end up in one of those terrible emails. It could have been worse, one of my daughter’s friends lived on the street where the refrigerated “morgue trucks” lined up. Others we knew were doctors or nurses and had to face every day what we merely feared we’d have to confront.
If you lived somewhere remote or in a warmer, perhaps more southern climate, the memory of the hassle might outweigh any terror you felt. But the terror was real for many of us and I think it’s important we don’t forget it, lest we foolishly repeat it. I say this not to darken the mood, but to acknowledge two key things:
- An increase in car prices, weighed against all this human suffering and lost potential, doesn’t mean much.
- Carmakers shouldn’t be judged too harshly for immediately freaking out and cancelling the supplies needed to make cars, most critically semiconductors.
The semiconductor shortages have faded, and now most automakers are capable of building as many cars as they want. Car prices, however, remain stubbornly high. Cox Automotive/KBB report that the Average Transaction Price rose 1.0% year-over-year to $48,03 in February, which is a bit lower than January. Sales incentives are up, at least, increasing by 18.6% over February 2024.
“February marks the five-year anniversary of the last ‘clean month’ of data prior to the global COVID pandemic that shifted the automotive landscape,” said Cox Automotive Executive Analyst Erin Keaing. “Compared to February 2020, ATP is up 25% while incentives are down 13% and monthly sales are down 9%. Auto loan rates are higher now as well, making new-vehicle affordability a real challenge for most households.”
“While affordability is a challenge for many households, six-figure vehicles continue to sell well and have experienced a four-fold increase in sales volume since early 2020,” she added. “The income divide remains a key issue for new-vehicle sales momentum, as the industry continues to count on high income households with prime and super prime credit scores to drive sales.”
There are some bright spots here, as the major Stellantis brands are showing decreases in prices. Tesla, too, saw Cybertruck prices decline by more than 10% from January to February as sales have cooled off for the new vehicle. There are still deals to be had if you’re flexible.
Why are prices still high? Trimflation and supply shortages have waned, but everything is still more expensive. New union contracts have made labor-related costs rise, material costs have gone up with inflation, and interest rates are still elevated from pandemic levels.
Of course, over this same period of time wages did go up, meaning that consumers had more money to buy cars. Wage growth, as shown in the most recent update from the Atlanta Fed, seems to be retreating.
The hope going into this year was that some good news on inflation and a strong economy would help lift car sales and regular prices. It’s still early, but it hasn’t happened yet. The stock market is down for the year, and inflation, while not as bad as predicted, hasn’t cooled entirely. The fact that the inflation report was a little better could boost markets today as it might mean rates will get lowered.
The ‘Suicide Mission’ Of Tariffs
In abstraction, tariffs can be a completely reasonable policy to balance trade between nations. If you’re a free trade maximalist, you might disagree and, also, if you’re a free trade maximalist you’re absolutely pulling your hair out about now. There’s no denying it now, we’re in a trade war. Individual industries and smart market participants can win trade wars, but nations rarely prosper due to the unpredictable effects of reciprocal escalations.
The above video from CNBC yesterday is quite striking, with economist and strategist Michael Darda of Roth Capital saying that pursuing a strategy of McKinely- or Smoot-Hawley-like tariffs is a “suicide mission,” pointing out the latter sent us into a period of time we now remember as the Great Depression.
“You have to ask yourself what the mission is here. And we’ve heard, you know, different goals. And it’s been a very chaotic period in terms of what the end game is,” said Darda.
It’s been hard to follow, but in the last day there’s been a back-and-forth over electricity rates and other reciprocal tariffs.
Later in the same segment, CNBC reporter Steve Liseman added “It is about the eighth reason we’ve had for the tariffs. And now he’s saying he’s putting 50% tariffs on Canada unless they agree to become the 51st state. That is insane. There is just no other way of describing it.”
To his credit, President Trump backed off that 50% tariff on aluminum and steel, dropping it back to 25%. Although that does put us in the awkward situation where the current policy makes tariffs lower on importing a whole car from Canada than on importing the materials necessary to make a car in America.
The President also tried this in his first term and, per this Automotive News report, most countries were granted an exemption, though it did likely impact prices:
A 2023 report by the U.S. International Trade Commission found that the original 2018 tariffs reduced imports of affected steel by 24 percent while increasing the price of steel products in the U.S. by 2.4 percent. Aluminum imports fell 31 percent, while prices rose 1.6 percent.
The report also found that the tariffs led to “decreased supplies of automotive steel products and increased input costs for automotive manufacturers,” in addition to longer lead times.
The auto industry is one of the largest consumers of steel and aluminum worldwide.
The ultimate goal of all of this, it seems, is to bring more steel and aluminum production back to the United States, though in the short term the impacts seem to mostly be increased uncertainty and increased prices for manufacturers. Also, the EU is planning to hit Kansas and Nebraska with increased tariffs on beef and chickens.
US Tesla Registrations Were Down 11% In January, Up 44% For Everyone Else
???? President Trump on Cybertruck:
"Look! I think I have a great imagination. Who else but this guy would design this? And everybody on the road is looking at it. It's amazing actually. That is the coolest design." pic.twitter.com/Za7tHgP3IL
— DogeDesigner (@cb_doge) March 11, 2025
Yesterday, President Trump gave what amounted to a sales pitch for Tesla on The White House lawn. This particular version of it was a bit strange, but President Biden also test drove a Hummer EV during his first term and this seems to have helped sales, so it’s not entirely unprecedented. Of course, GM hadn’t just given President Biden hundreds of millions of dollars.
Tesla needs the help. In addition to sales dropping in China and Europe, we finally have data from this year on the automaker’s registrations and they’re not great according to S&P Global Mobility via Automotive News:
Tesla’s new U.S. registrations fell 11 percent in January while rival electric vehicle makers enjoyed a 44 percent surge, led by Ford, Chevrolet and Volkswagen, S&P Global Mobility data showed.
Tesla generated 43,411 registrations in January, good for the No. 1 spot among EV brands and a 42.5 percent market share. But Tesla’s share fell 12 percentage points compared with the same month last year, the data showed.
Non-Tesla EVs delivered 58,777 new registrations in January, with double-digit and triple-digit percentage gains from a variety of Tesla competitors, according to the data, which does not include hybrids or used vehicles.
Musk, at the same event, said that the company would double production in the United States thanks to “[T’]he great policies of President Trump and his administration.” I should probably mention that, a close look at the math shows Musk probably already made this same promise during the Biden administration.
Building more cars while sales are expected to decline is quite the act of faith.
Volkswagen Sees A New Market: Europe’s Militaries
We’re coming up on the 80th anniversary of the US Army liberating the Volkswagen plant in the city of Mittellandkanal, where Kübelwagens (better known to us as predecessor of the VW Thing) were being built for the German army.
In addition to tariffs, the current administration has threatened a pull-back from the defense of Europe and, in particular, briefly stopped arms shipments to Ukraine. Where this goes is anyone’s guess, but European nations aren’t waiting to find out if the United States government would step up in the event of an attack so those countries are planning to ramp up their own production.
One company in Europe with a lot of excess capacity at the moment is Volkswagen. According to Bloomberg, they’re ready to jump into military production:
No concrete discussions have so far taken place, but the German carmaker is ready to advise other manufacturers on the development and production of armed vehicles, Chief Executive Officer Oliver Blume said Tuesday during the company’s annual media conference in Wolfsburg.
“We have automotive expertise and are also available to provide advice, but at the moment everything is completely open,” Blume said.
European leaders have pledged to boost defense spending to shore up support for Ukraine after Trump halted military aid and stopped sharing some intelligence with Kyiv’s forces.
Germany has, since WWII, continued to build arms and Volkswagen subsidiary MAN Trucks has a joint-venture with military defense contractor Rheinmetall AG. What I’m saying here is that I’d love to see an ID.Buzz-based technical.
What I’m Listening To While Writing TMD
While we continue our path through the naughty aughties, why not The Shins with “New Slang” to start the day?
Gold teeth and a curse for this townWere all in my mouthOnly I don’t know how they got out, dearTurn me back into the petI was when we metI was happier then with no mindset
Nostalgia is a helluva drug.
The Big Question
Which Volkswagen Group product would make the coolest military machine?
I just noticed that I can’t tell what year the RAV4 pictured is. The one on sale five years ago and one on sale today look EXACTLY the same…very dated at this point IMHO. Maybe they’ll just keep making it forever like the Chevy Express.
The current gen is from 2019, so it may be due for a new model. With the current demand for them, they may not need to do anything. They may not be as fresh looking as some of its competition, but the RAV4 is far from dated in my opinion. Then again, 2019 still feels like yesterday to me.
Noooo! At least in bars you could discuss things other than the bible.
Military vehicles. Huh? How 20th century. What’s VW’s drone and cyber program?
Wow, everything’s computer.
Daddy likes screen time.
Matt’s Morning Doom
I’m shocked! Shocked! Well, not that shocked.
I guess the positive side of this is that in 3-5 years there will be a bunch of heavily depreciated luxury vehicles available for Autopians to make bad decisions about. 😉
That may be true, but Stellantis and the Cybertruck are not strong arguments in favor of it. Both were wildly overpriced before this and likely are merely regressing to the mean as both companies realize that they can’t charge whatever insane amount they want anymore.
No. He gets no credit for kind-of-but-not-really fixing a problem he created. That’s like if I start hitting you with a tire iron and then expect you to give me credit for stopping (edit: not even stopping, just hitting you half as hard). I’m still the asshole who started hitting you and you should rightly throw the book at me.