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
Talked to a friend who is a fed who previously worked from home. They’ve been ordered back into the office to do the same things they did from home. DD was high mileage so they had to buy a newer or lower mileage vehicle.
So, $15K+ for a used car, plus about ~$3500 a year in new gas consumption plus tires plus oil changes plus depreciation. Plus the risk of metro highway commuting. Perhaps plus lunches and a wardrobe refresh.
And they don’t know if they’ll have a job at the end the year. Still could be laid off.
All so they can do the same work they previously did at home.
Sure, I’d like to work from home but I don’t have that kind of job. I accept that.
However, I’m content with people working from home who can. Less pollution, less traffic congestion, etc.
I was going to hold off on replacing our aging vehicle but decided to jump into the market due to all the tariff talk. If used cars are going to go all 2021 again, I’m snagging one now, just like I did in 2020.
Apropos of the BYD mention, I don’t expect we’ll see US-regulations-compliant Chinese EVs for sale in the states anytime soon, and seeing them here w/o a healthy tariff surcharge is even further away (perhaps not even in my lifetime). And I’m not even in that much of a rush for them… sure: there are a LOT of weird, interesting, and attractively priced ones to choose from, but there’s also a lot of questionable support and build quality, iffy/snoopy software, etc… to deal with.
With that said, I saw this not-so-little fake off-roader (more of a city car) starting at the equivalent of US15K on Youtube and if this WAS actually for sale and at least half a dozen people had bought it and were able to keep driving it for a few months without issue, I’d probably just put one on my Visa card today simply to save myself the hassle of getting my 20-year-old daily driver to pass smog every couple of years:
iCar V23 (iCar is a subsidiary of Cherry): https://www.youtube.com/watch?v=Ucctiw1b6As
Holy schnauzers…these comments today.
DT, JT et al. Dudes, you need to start mailing out paper bags for people to breathe into with all the hyperventilating. It’s a bit nuts that people can get this fired up, in such a wasted energy like wrong way.
It’ll be fine, commentariat/members! Your world is not collapsing. No one likes change, but by no means does change=implosion of your life.
Relax, already. Stop acting/typing like a 13-year-old girl who found out she has to have braces for 13 more weeks.
If you can’t, I believe there is a “J” named URL that would welcome those keystrokes, lol.
Just sayin’. 🙂
I do hate change but I’m a big fan of schnauzers.
See! Common ground rooted in common sense 😉
I hope you get to enjoy your blissfully untroubled state for a good long time, bud.
Why wouldn’t I? Nothing has changed but the signature on the checks. Do you not know that part?
Yikes.
Nothing has changed for you. What’s it like to go through life caring about nothing but yourself?
Tell that to a couple of people I know who are looking for jobs despite good job evaluations and so forth all because a billionaire came in and started making changes willy-nilly.
Remember, back in the day, when our biggest arguments here were about what to call a front trunk?
Back when the rudest or most alarming thing you’d read in the comments was usually just an unintentional TacoTruckDave blunder?
Remember when we could come here and have fun, talk about cars and car culture?
Pepperidge Farms remembers.
I remember that one user who was always right about everything, and there were like 10 threads wondering where he went, and how much people hated/loved the those ass-whipping comments.
Jolt Cola remembers.
Me too.
I mean… Jolt Cola and I remember.
That one user that was sometimes brilliant/sometimes insufferable?
I hope they are doing well.
The internet can be especially harsh to certain personality types.
I like to think they logged off and are working on a fun automotive project somewhere…
sun beating down on their back
sparks flying from the grinder
Why’s it always some dismissive schoolyard metaphor?
Not exactly sure what you mean, but if you are referring to all the “orange Hitler” and “husk” tattletale-like gotchas…I dunno?
Maybe it has something to do with giving one’s self permission to cope with the reality that things aren’t panning out as planned, and the juvenile name-calling somehow satiates those feelings in a way that feels like reverting to the comfort of the womb? It’s not a healthy way of looking at things, but it sure is prevalent. That’s one possible reason.
Heck, what do I know. I have a PSY degree from a D-1 school, but I drank and bullshitted my way through it, lol.