One of the major narratives around the car market during 2024 was that political uncertainty was keeping buyers on the sidelines. Consumers do not like uncertainty. The resolution of this, in the form of an uncontested election, brought a brief period of market movement at the end of 2024. Now, the uncertainty of the political universe is yet again causing issues.
The vibes are bad for this morning’s installment of The Morning Dump, so I’ll do my best to reverse them at the end, thereby cheering y’all up before you start the day. The confluence of tariffs and political uncertainty is making the fabled lease renewal cliff even dicier, while a risk to tax refunds could bring the whole thing crumbling down.
If you’re CEO of Nissan and reading this piece, the vibes have only gotten worse as it’s becoming clearer that the board of directors is eyeing an exit for you, though when that will be is anyone’s guess. Tesla’s CEO isn’t going anywhere, but feelings about the company continue to worsen by the day.
Oh, right, good vibes. Good vibes. We’ll have two American automakers in F1 in 2026!
This Is Not The Car Market Anyone Wanted
I don’t want anyone to read this and assume the worst is going to happen. I picked the headline carefully because we seem to be headed towards a worst case scenario for buyers. It doesn’t mean that’s what will happen, and a little bit of good news could go a long way towards reversing the trends.
A car is, as people like to point out, the second biggest purchase many will make. Unless you’re super wealthy, it’s a decision not entered into lightly. Roughly 80% of buyers finance new car purchases, meaning that wise buyers have to decide that they’re able to pay a certain amount each month for possibly seven or eight years. If you think you’re going to lose your job or that inflation is going to go up, you might decide you’re not going to buy right now.
January’s new car sales were mixed, and February, which held so much promise, fell below the initial exuberant estimates. What happened? Here’s how Cox Automotive explains it:
Initial projections suggest fleet sales were soft in February while retail sales held up reasonably well, even though consumer confidence fell notably in February as worries about the economy took hold. As Chief Economist Jonathan Smoke noted, “The daily chaos from Washington has been negatively impacting consumer sentiment and likely contributing to lackluster consumer spending in February. The biggest worry I have for the spring continues to be the trend we’ve seen in interest rates, which moved higher in February.”
Consumer confidence is a key measure closely tied to auto sales: Lower consumer confidence readings are often associated with lower sales. With trade and tariffs dominating the media headlines through February, some shoppers likely decided to purchase before higher prices set in – a tailwind for the market – while others may have decided to put any big-ticket purchase on ice, choosing instead a wait-and-see approach, concerned about broader inflationary risks.
Most economists and industry watchers seem to think that the tariffs would have blown up the car market in the United States, so it’s probably good that they didn’t happen. Although maybe they will again? That’s a lot of uncertainty.
New car prices have remained stubbornly high, and interest rates have yet to come down, but there’s a one-two punch coming in the form of lease renewals that could impact both new and used cars in a way that’s bad for the people buying cars and the people selling cars. Let’s call it the Lease Renewal Super Cliff or LRSC.
Last year I mentioned that the car market is going to lose a million lease returns in 2025 as one of those strange, yet predictable outcomes of pandemic-related shortages. Quite simply, there were fewer cars built, which meant that there were fewer cars leased, and as most lease terms are three-year terms, we’re now hitting the point where there are the least of these high quality used cars on the market. This is a big deal, as Ivan Drury at Edmunds points out:
Three-year-old used vehicles are the cornerstone of the used car market: They are typically the most desired, generally still offer some form of factory warranty, and represent a good value for those uninterested in spending new-car money. 2025 will be defined by its dearth of these popular models because 2022 was one of lowest new-car sales volume years in recent memory with only 13.8 million sales (the lowest since 2011’s 12.8 million sales). Because lease deals dry up when demand is strong, those low sales tallies were then coupled with a lease penetration rate of only 18%, leaving just 2 million potential 3-year-old lease returns in 2025. That’s a far cry from the norm of 4 million returned leases from the late 2010s, when new-car sales volumes were closer to the 17 million mark with a 30% lease penetration rate.
So that’s bad. The market needs those cars. It might get worse, however, and this is the LRSC scenario.
Not only are off-lease cars a big source of inventory for car dealers, those buyers are expected to then lease or buy another vehicle to replace it. This means that automakers get more sales, dealers get more sales, and the whole car economy keeps moving. The hope was that we’d have a strong economy with lower uncertainty and that would speed the people trading in the leases towards leasing new cars.
Because of high interest rates, still-high transaction prices, and all this uncertainty… that might not be happening as Automotive News points out:
A consumer who leased a new vehicle from a dealership three years ago might feel “sticker shock” if they made that same visit today unless the store offers incentives, Drury said. Pricing shock could make vehicle lessees choose — as was the case in 2021 and 2022 — to extend or buy out their lease to avoid the market.
If enough consumers do that, it would further reduce the amount of inventory available for off-lease purchasing, Drury told Automotive News.
Can it get worse? Yes, it can get worse. Taking more of the already low number of off-lease cars out of the market is bad, and it means we probably need just one more domino to fall in order to make the market that much harder for buyers and sellers. When you look at a chart of car sales, there’s usually a seasonal bump that comes around late February into March. This is because people who file taxes early are usually the ones who expect a refund, which they then spend on things like cars.
What if refunds are delayed this year because the Treasury Department told the IRS to fire a bunch of people or offer them early retirement? Here’s the Associated Press on the potential risk:
The layoffs are part of the Trump administration’s efforts to shrink the size of the federal workforce through billionaire Elon Musk’s Department of Government Efficiency by closing agencies, laying off nearly all probationary employees who have not yet gained civil service protection and offering buyouts to almost all federal employees through a “deferred resignation program” to quickly reduce the government workforce.
A reduction in force of tens of thousands of employees would render the IRS “dysfunctional,” said John Koskinen, a former IRS commissioner.
That would be not-great timing. I have no idea if refunds will be delayed or not, though former IRS administrators think that’s a real risk. The main issue is that the car market probably cannot afford much more of this and we’ve gone from a potential big year of car sales to one that’s maybe going to sting.
It’s bad for new car buyers, who now face high lease costs at a time when job growth is slowing and inflation is not yet ebbing. It’s bad for used car buyers, who might end up with little in the way of inventory. It’s bad for dealers and carmakers, who need consumer confidence going in the positive direction. It’s just bad.
Again, it’s unclear how this will all play out, but anything close to a recession and it’s going to get real uncomfortable real fast.
Is Nissan CEO Uchida In Or Out?
While we’re talking about unpredictable things, is Nissan CEO Makoto Uchida in or out after the disaster that was the potential Honda merger? The smart money is on someone like Jeremie Papin or Guillaume Cartier stepping up, but is that something that happens now or later?
Among directors, one opinion holds that if the company announces new, more aggressive turnaround measures, they should be unveiled by a new chief executive charged with executing them, one person said. That could trigger a change at the top this week for quicker change.
Another line of thought holds that Uchida should stay on until Nissan has had time to carefully craft deeper restructuring and find the right replacement for long-term leadership.
Directors with that opinion say the current executive team, not Uchida alone, bear responsibility for Nissan’s woes and that a more radical overhaul is necessary. This could keep Uchida in place longer as a wider restructuring unfolds, Japanese national broadcaster NHK reported.
That’s not helpful at all.
Tesla Continues To Lose Ground As Musk’s Role In Government Reportedly ‘Narrowed’
Tesla is an interesting company. As we talked about last week, the company is held up by a lot of hype and expectation (to be sure, it makes good cars). If you want to put it in hard numbers, Tesla enjoys a price-earnings ratio that is way higher than most other companies and, certainly, other automakers. As of last week’s close, Tesla had a P/E ratio of 128.87, compared to 7.5 for GM, and 7.38 for Toyota. What this means is that Tesla shareholders are paying a lot more in stock for every dollar that Tesla earns.
The company’s CEO, Elon Musk, has been busy doing a lot of non-Tesla things lately. They could be good for the company long-term, though there are threats everywhere. An obvious and apolitical risk is that by focusing on other things, he risks losing ground to companies like BYD in China and Renault in Europe. The politics are definitely at play, with Democratic-aligned groups now running ads featuring Musk and implying he’s stealing money from kids and retirees. As one strategist mentioned to CNN, he’s sort of unavoidable at this point:
“He makes for a very convenient boogeyman,” said Lynda Tran, a Democratic strategist and former Biden administration official. “He’s driving the vast majority of headlines right now. Whether you want to or not, his name is on your lips because he’s taking up so much of the oxygen in the room.”
That seems to be coming with a cost for the company, though as Bloomberg reports, there are other reasons why Tesla might be falling behind:
Then there’s BYD Co. The company, which stopped making cars powered entirely by internal combustion engines in March 2022, has a market share heading toward 15%. It sold more than 318,000 fully electric and hybrid passenger vehicles last month, up 161% year-on-year. The Shenzhen-based carmaker also notched another record month for overseas sales, which hit 67,025 units.
Its success is a major reason why Tesla is losing.
While Tesla sales in other parts of the world are cratering as Musk wades deeper into politics many find unsavory — sales in Germany plunged 76% to only 1,429 cars last month, even as overall EV registrations jumped — in China, disappointing shipments have more to do with a narrow and dated lineup, particularly in the face of up-to-date and more exciting offerings from BYD and others.
Is Elon Musk going to get out of all this what he wants? Republican Senators and Cabinet members seem to be a little less enthused if this Politico report is to be believed:
Two senior Republicans are reiterating President Donald Trump’s recent messaging about Elon Musk’s realm of control, insisting that the Department of Government Efficiency initiative cannot overstep Cabinet officials’ authority and fire federal employees.
“Elon Musk does not have the power to fire people,” Republican Florida Sen. Rick Scott said on CNN’s “State of the Union” to anchor Jake Tapper on Sunday. “The president of the United States is Donald Trump, and the agency heads are the ones who manage each of their departments.”
Scott’s comments follow a contentious Cabinet meeting where administration officials expressed frustration with Musk’s attempts to override staffing and policy decisions within their agencies.
No one knows how this is going to end, though the question will have to be asked, is: Was this all worth it for Musk? As of this writing Tesla’s stock has dropped to below $250 a share.
Cadillac Is Going To F1 In 2026
Both Ford and Cadillac will be a part of the F1 season next year, which is awesome news if you love racing and/or America. This was something that felt like it wasn’t going to happen after Cadillac and Andretti Racing announced a bid to join Formula One, only to be told that Andretti wasn’t good enough.
People freaked out and Andretti was quietly replaced with TWG Motorsports, which owns Andretti Racing (as well as Wayne Taylor Enterprises for sports cars and SPIRE for NASCAR). From Cadillac’s announcement:
“For the past year, we have worked hand in hand with GM to lay a robust foundation for an extraordinary Formula 1 entry,” said Dan Towriss, CEO of TWG Motorsports. “Now, with 2026 in our sights after today’s final approval from the FIA and Formula One Management, we’re accelerating our efforts — expanding our facilities, refining cutting-edge technologies, and continuing to assemble top-tier talent.”
“We’re thrilled the Cadillac Formula 1 Team is official, as the team has been accelerating its work,” said GM President Mark Reuss. “We’re incredibly grateful for the support from the FIA and Formula One Management leadership for us and for our collaboration with TWG. The excitement only grows as we get closer to showcasing GM’s engineering expertise on the prestigious global stage of F1.”
This announcement follows confirmation that long-time motorsports and Formula 1 team executive Graeme Lowdon will serve as Team Principal of the Cadillac Formula 1 Team. Industry veteran Russ O’Blenes has been named CEO of TWG GM Performance Power Units LLC, a new company that will put Cadillac on the future path to being a “full works” team — building Formula 1 chassis and power units.
Cool stuff.
What I’m Listening To While Writing The Morning Dump
Will all the songs this week be a response to Friday’s Slack Tales? Probably. I won’t hit you with the full Jepsen yet, as I want to make peace first. Whatever you feel about Coldplay, I think it would be hard to argue that the best pop-alternative album to come out of Britain around the end of the 20th Century isn’t David Gray’s amazing “White Ladder.” I had trouble this morning picking a best song from that album, but let’s go with “Please Forgive Me.”
The Big Question
How do you see the car market going this year? Are we going to land this plane or what? What’s your personal level of consumer confidence?
Top Photo
On account of all the MAGA talking heads introducing us to the “Economic Detox” talking point this weekend. Probably pretty screwed. Really seems like a formality at this, J-POW just needs to step on his rightful alter and declare the mighty R-word. What’s going to be interesting is, everyone else’s plane seems like the landing got a little bumpier. While America seems directed straight towards the unoccupied control tower. As the FAA has banned. Really seems like the rest of the world can move on without us. It’s easier to fire the boss, than all his subordinates. So, when the boss decides to take up the sport of General Arson. Finding some else who can provide a open-ish market and some global security is looking likely. Which presents a new challenge to the Big Three. We’ll all be broke and the global market will be hostile towards our generalized arson hobby.
Tesla is kinda screwed, I think. Many many people around where I live (MA) don’t want to be seen driving a “nazi-mobile”. So while people may keep the one they have, I don’t see anyone buying one.
I have a 12-year old car that is fine. We got a new plug-in hybrid for my wife last year with a ton down and short finance period (3 years). I planned to buy a new car this year as it feels like we’re getting to the final hurrah of ICE engines with manuals and I wanted one before they were dead. Not anymore – my car will do fine.
To change gears, this – Elon Musk does not have the power to fire people,” Republican Florida Sen. Rick Scott said on CNN’s “State of the Union” to anchor Jake Tapper on Sunday. “The president of the United States is Donald Trump, and the agency heads are the ones who manage each of their departments.” – is bullshit. My wife works in a management position in the federal government. Musk has absolutely been given the power to fire people through his de-facto control of OPM. I’m directly seeing the shit that is happening. Stop letting republicans lie to you about this like they lie about everything else.
He only has the power if he is allowed to do so. The problem is that sychophantic boot-lickers put into place of many of the Agencies are perfectly happy to “just follow orders.” The courts will have their opportunity to weigh in but that will take time and relies on how willing they are to do their jobs and not just boot-lick as well. So far Congress has shown no signs of not just ceding their responsibilities so they might just get away with it.
Your point about republicans constantly lying still stands though.
Well, if Rick Scott says it, it must be true.
I had high hopes. Thought maybe Trump would try to look like the darling and somehow talk the fed into putting out cheap loans again, inflation be damned. instead the threat of tariffs have caused concerns about inflation due to this play. I am glad I was able to get a new vehicle for used car prices in January before the market went stupid again and all the EOY discounts went away. But I was also hoping to perhaps refinance during the short term interest rate decline I expected.
I honestly think the recession is already underway. Job loss seems to be a daily reporting in the news. Prices of things are still out of control, and the real chance of global war is not inspiring for many to go out and be frivolous with what money they currently have.
Re: the car market. Anecdotal, but I think a lot of readers here feel the same. Bought my ’21 4Runner ORP off lease last year mainly due to not liking much about the new generation and the price increase associated with getting the new version of what I have. Didn’t want to roll the dice with a whole new design that costs about $10k more (before mark up) to get the same trim. Not true in all cases, but I think a lot of people are more reluctant now to dive into updated or totally new models vs. the race to the dealership like we saw with the Bronco, Maverick, and new Vette when they debuted. Plenty of stories out there of new vehicles dealing with quality issues, including Toyota trucks.
I will have my Fiat 500 Abarth up for sale pretty soon. Maybe this is good news for me? (I can hope, anyway)
Zero confidence. The guy in the Whitehouse is doing everything in his power to outright tank seemingly every single corner of the US economy right now. He said he was going to for 4 years after he lost and he’s still on TV saying he’s going to tank it now. Why should I not believe him?
Before I answer the Big Question, I just wanted to thank Matt for his really excellent coverage of the economy and politics this year. At a time when so much of the regular news coverage just feels toxic and over-the-top, I find looking at the current news cycle through the lens of the auto industry to be kind of a refuge. Like looking at a full solar eclipse by putting a pinhole in a box. You can see and understand the thing without frying your retinas. So, thanks for that Matt.
As for my personal level of consumer confidence, I’m just going to share this anecdote: my wife’s company, which she started 3 years ago and has been doing extremely well, is reliant on landing 3 or 4 new contracts every quarter, which means she’s in a position where she’s likely to feel the effects of a slowdown more significantly than many recurring-revenue types of businesses.
We started this year with a full sales pipeline, and had three (private sector) contracts in the finishing stages to start late in Q1 as her team rolled off their prior projects. None of those are government contracts or rely on ANY level of direct government funding, so they should be safe from the cost cutting happening at the federal level. One client is a major national bank (perhaps the first one you’d think of when someone says the words Wall Street.) One is a multi-billion dollar national non-profit foundation. The third is a large regional healthcare provider.
ALL THREE of those contracts individually and with different nebulous reasons got put on hold AFTER finishing up all the legal contract work, when the scope of work was agreed to and the start date was set. The only commonality between the reasons given by the three entities in different industries was their use of the word “pause”….followed by something something BUDGET, something something PRIORITIZING, or something something “UNCERTAINTY.”
Markets. Hate. Uncertainty.
In the weeks since we lost these contracts, I’ve had two phone calls from white collar friends out networking for a new gig. The reasons were “no, it’s nothing to do with politics, it’s just that my company was struggling,” or didn’t get another round of funding, or whatever. These are all anecdotes, and as a data guy myself I always treat anecdotes for exactly what they are, but my own experience having been through numerous recessions and market pullbacks, is that markets and businesses HATE uncertainty. No matter what you think of government restructuring (IMO we were long overdue for it) or tariffs (bad for prices and especially the auto industry but might be good for the working class economy long term, who knows) – the aggressive and ham-fisted way we are going about these changes with on-again off-again tariffs and chainsaw cost cutting with no obvious plan and just a bunch of random communication by tweet, has created MASSIVE uncertainty in many sectors of the real economy. For this reason I think we are likely to be in for a bumpy ride.
How much so? My wife and I just sat down and did a major review of our household budget so that we can get really aggressive about battening down the hatches. I have killed off all my subscriptions and other services that are not in the “essential” category, paused the auto-renewal on my season ski passes, and on and on down the budget list. As a concession to my wife I even paused my Autopian subscription (which pains me a bit — see my above note about loving Matt’s Morning Dump coverage). Youtube TV? Gone. After-school program we weren’t going to often enough? Gone. Kids’ expensive music lessons that they weren’t in love with? Traded for free theater classes. And on and on down the budget list. These might all seem like trivial changes, but they are exactly the kinds of changes that have a butterfly effect when multiplied by millions of anxious consumers.
Short story long, y’all can do what you want, but I think anyone who’s paying attention should be putting their politics aside and sitting down right now to look at their household budget and start answering the question, “what would we do if we lost some or all of our income this year?” Don’t do anything rash or stupid because of something some idiot wrote on the internet, of course, but I can see the canary wobbling and I personally have one eye on the exit to the mine.
We said.
I have no consumer confidence whatsoever. We’re being lead by a senile moron and Silicon Valley grifter, both of whom are effectively not bound by any laws and make massive decisions purely to spite people/businesses/countries/institutions they personally don’t like.
This sounds like scare tactic from industry folks to justify prices and bring people in. Demand is low. Supply is low. Interest rates maybe not dropping. That’s not going to make prices higher than they already are. Throw in EVs being subsidized greatly by the makers, demand for used cars might be even lower.
Nothing can be worse than $20K markups. The market will be fine.
I just sent in the final payment on my Bolt, got it paid off one year early! I have no plans to buy another car, so while I’m not happy that the car market might be screwed, it shouldn’t have a direct impact on me. None of this is good though, the chaos of Trump and Musk is really screwing all of us over.
and every month I send Hyundai $346 for a 0% interest loan for my wife’s Ionic. I will continue for the full 7 years because the dollars I am paying them with nowadays are worth less than the dollars when purchased (a 2019 in 2020). Not the best car in the world but 40+ mpg (sometimes 50) makes it the perfect “uh oh we are ficked” tide us over vehicle. Also Leon Skum can go suck sand.
Oh, we’ll land this plane. Gravity and physics will take care of that. Future historians will piece together what happened and maybe learn some valuable lessons that we seemed to have missed. Hindsight being 20/20 and all that.
Historians learning something is an academic exercise. It’s worthless if the masses don’t learn it or choose to ignore.
Hindsight is in fact far from 20/20.
(Source: look around.)
Yea, not very confident about learning from the lessons of history as a race.
We intend to keep our 2016 Volt and 2012 Colorado until the doors fall off. Perfect pair for our needs and long paid for & both carefully maintained. Frankly I am terrified what’s coming from Trump+Musk and don’t trust that our SS will arrive month to month. Going to hunker down.
Hope the Volt Battery Survives. I can only imagine what the cost of a likely chinese made battery will cost in the near future.
Matt, I feel that The Decemberists’ “Apology Song” might be in order. Also, I think that the strong response to Tales from the Slack and Mercedes’ article over the weekend speak somewhat to the desire for more weekend articles amongst the readership. Murilee’s weekend content at The Lighting Site was some of the best stuff!
To answer the question, I’m reasonably confident as a consumer. I make okay money in a job I like and have been at for several years. I’ve lived in my house for a long time and my mortgage is ridiculously affordable. When I bought my new Forte GT last month I didn’t break the bank and got decent financing. If worst came to worst, the Miata is 100% mine. I’m not going to stop living my life for the next four long goddamn years just because the orange man wants to break everything.
That being said, I absolutely HATE the stupid, unnecessary chaos we’ve been plunged into. There’s a lot of “Trump supporters are going to get it so much worse when the shit hits the fan” sentiment right now and it’s BULLSHIT. There’s plenty of pain to go around, and it’s going to descend upon blue and red alike.