There Is One Segment Of The Car Market That’s Actually Getting Cheaper

For all the consternation over tariffs, stealth price increases, and a dearth of entry-level models, there are still deals to be had if you’ve got a little flexibility and a lot of imagination. In particular, I think there’s one big maneuver I’m trying to convince people to consider, and now there’s more data to suggest that my crazy idea might work.

The Morning Dump will continue its campaign against overwrought dourness today, or at least I’ll do so at the top of this post. To everything there is a season, and this is the season of uncertainty, but maybe it’s not all so bad. Auto loan payments have hit a record high, and delinquencies are up, but not at a level that’s necessarily a danger sign, and the overall amount of loans held is actually lower.

When it comes to Chinese-American trade relations, there’s no deal, but there’s a deal to remove some of the penalties that were making a deal less likely. That’s not bad. If anyone is hurt by all of this Chinese-American trade drama, it’s actually Germany, which has seen its fortunes rise and fall with its longtime Asian partner.

If you’re an autoworker, the news that GM will bring more truck production back to the United States is a good thing. If you’re going to buy a truck in the future, it might mean more expensive trucks, but a wise woman once said that if you take the good, you take the bad, you take them both, and then you have the facts of the auto industry.

The Cost Of EVs Continues To Drop, Gas-Powered Cars Not So Much

I often like to start TMD off with a chart, and today it’s an old favorite via Cox Auto/KBB:

You can see the whole picture in this chart of Average Transaction Price and Incentive Spend. The slow rise in prices, the immediate panic and shortages after the pandemic, and the stubbornly high prices that were somewhat offset by rising incentives. Then you see the impact of tariffs, just a bit, with decreasing incentives.

Here’s how Erin Keating from Cox Automotive explains the situation we’re in now:

“While tariff policy is adding uncertainty to the new-vehicle market, prices are holding remarkably steady, a reminder that auto industry change is often slow. Many automakers are keeping true to a promise to hold the line on pricing, at least in the near term. We are still expecting prices to move higher through the summer, as the inflationary impact of tariffs begins to hit. Right now, we believe dealer profitability is being squeezed, as costs on many products are going up, but raising retail prices in this environment is a real challenge.”

That sounds correct to me. Something has to give, and automakers seem likely to pass on stealth price increases via lower incentives, increased delivery fees, or whatever they can do that isn’t raising the price of the actual car. There is one segment of the market that’s been consistently trending downwards, though. The ATP for EVs dropped to $57,734 in May, compared to $59,123 in April. Incentive spending also increased to 14.2%. That’s the highest incentive since 2018, and way more than you’ll get for a comparable gas-powered car.

Why is this happening?

Tesla average transaction prices declined in May, falling 1.5% to $55,277. Tesla prices in May were lower year over year by 2.8%. Model 3 and Cybertruck prices increased modestly – less than 1% – month over month in May, while all other Tesla products showed a month-over-month decline. Tesla’s best-selling product, the Model Y, had an average transaction price in May that was 2.9% lower than in April, at $53,895. The Model Y is also the best-selling EV in the U.S.

The revised Model Y is rolling out, so it’s possible that this decrease in Model Y pricing is just a reflection of old Model Ys still being sold at a large discount. If Model Y prices stay low into the summer, that’s more indicative of a demand issue.

So what can you do about this? Our longstanding advice about leasing new EVs/buying used EVs still holds. Depreciation remains elevated for these models, and leasing allows most consumers to access the tax credit (while it still exists). As I’ve written before, this creates a specific opportunity for a flexible buyer. With many excellent lease deals out there on an electric car, if you can support one in your life, then now is the time to potentially grab a new vehicle with a much lower monthly payment.

What happens at the end of the loan? The key to this gambit is that you have to make sure you get your buyout price locked in now. Depreciation on used cars is super high at the moment, so after the tax credit/incentives you might end up with a car that started at an MSRP of $60k, that you’re leasing on a reduced MSRP of $40k. A lease buyout is premised on the estimated residual value of the car at the end of the term, which we’ll just estimate at $30,000 for easy math.

If the market absolutely tanks and no one wants EVs, or something else happens, then you might discover your car is worth less than $30,000. At that point you should just walk away, be grateful you got a cheap car payment for a while, or maybe even take advantage of the crappy market and lease something else cheaply. If the market gets tight due to tariffs or an alien attack on magnets or whatever, your car may be worth a lot more than the estimated residual value, meaning you can buy out your lease and end up with something that was net cheaper than if you’d have bought the car outright.

Obviously, specific companies have specific policies, and there’s no guarantee this will work, but the existence of the tax credit and the uncertainty in the market could make it an OK gamble.

Auto Loan Delinquencies At Record Highs, But Maybe It’s Not All Bad

Nissan Sentra Sr Review 7 — Photo: Author

The number of people who are at least 60 days late on auto loans was up 1.4% in Q1, according to TransUnion. The Federal Reserve Bank of New York found the same was happening, although the overall national auto debt balance was down. What’s going on here?

I’ve been talking about this since… checks notes… 2023. There are some specific vintages of loans given out during the pandemic that are just plain bad, suffering from both inflated values for cars and poor underwriting that assumed higher creditworthiness on the part of buyers. Those loans have to work their way through the system.

You can read the whole report here, but the bottom line is that the rate of serious delinquencies is “stable” and probably not something to freak out about yet. The long-term concern might be over car payments, which do remain high, as Automotive News reports:

The average balance on the 80 million auto loans the credit bureau counted in the first quarter was $24,413, up 1.6 percent from a year earlier.

Average loans are going up, it seems, but the number of people holding those loans is going down a bit.

Did Germany Get The Most Screwed By The China Situation?

Volkswagen Plant Wolfsburg, Golf Production — Source: VW

Here’s a thought exercise. Germany benefited greatly from the industrialization of China, providing both cars for a growing middle class via joint ventures and the tools necessary to manufacture cheap goods to sell to the West. This caused a “China Shock” here, and there’s a way to look at all of the political issues in the United States as a slow-moving reaction to the gutting of industrial jobs in the Rust Belt and other places.

The good times for Germany are coming to an end, it seems, as the local Chinese automakers have figured out how to build cars consumers want, and the brand value of, say, an Audi is perhaps lower than it was. Chinese automakers can also manufacture at a high level, thanks in part to companies like Apple, so how much do they need German industrial exports and expertise? Now it’s Germany that is dealing with political issues as China needs less from it.

I mention this because the United States has another deal to make a deal to make a deal with China.

Per Bloomberg:

After some 20 hours of negotiations in London, US Commerce Secretary Howard Lutnick said both sides had established a framework for implementing the Geneva consensus that last month brought down tariffs. “First we had to get sort of the negativity out,” he said. “Now we can go forward to try to do positive trade, growing trade.”

While a more upbeat tone should reassure investors worried about a decoupling of the world’s largest economies, details were scarce and the deal could still be nixed by top leaders. The discussions also did little to fix issues such as China’s massive trade surplus with the US, and a belief in Washington that Beijing is dumping goods on its markets.

It’s something. It’s not much, and it might not move markets as much as slightly cooler inflation than expected, but it’s not nothing. Getting access to Rare Earths and magnets in exchange for letting Chinese students come to the United States is a short-term win. You know who is also begging for rear earths? Germany, as Nikkei Asia reports:

Germany’s importers of rare-earth minerals and magnets are keenly awaiting details after Beijing said last week that it would fast-track approvals of exports to European companies.

Two key importers told Nikkei Asia that Chinese export controls over seven rare earths — implemented April 4 in retaliation for Washington’s wide-ranging trade tariffs — cut off virtually all supply into Germany for nearly two months. Some companies have exhausted their inventories, given that China has a near-monopoly over those commodities.

It’ll probably get worked out, maybe. Eventually.

GM To Shift More Truck Production To The United States

Chevrolet Silverado High Country with L87 — Photo credit: Chevrolet

General Motors made another big announcement about investments in the United States and, unlike seemingly most of the investment promises made by companies trying to woo the Trump Administration, this one feels new and a direct result of tariff threats.

Here’s what GM had to say about it:

Orion Assembly, Orion Township, Michigan: GM will begin production of gas-powered full-size SUVs and light duty pickup trucks at Orion in early 2027 to help meet continued strong demand. As a result, GM’s Factory ZERO in Detroit-Hamtramck, Michigan will be the dedicated assembly location for the Chevrolet Silverado EV, GMC Sierra EV, Cadillac ESCALADE IQ, and GMC HUMMER EV pickup and SUV.
Fairfax Assembly, Kansas City, Kansas: Fairfax Assembly will support production of the gas-powered Chevrolet Equinox beginning in mid-2027. Sales of the recently redesigned Equinox were up more than 30% year-over-year in the first quarter of 2025. Fairfax remains on track to begin building the 2027 Chevrolet Bolt EV by the end of this year. GM expects to make new future investments in Fairfax for GM’s next generation of affordable EVs.
Spring Hill Manufacturing, Spring Hill, Tennessee: GM will add production of the gas-powered Chevrolet Blazer at Spring Hill starting in 2027, alongside the Cadillac LYRIQ and VISTIQ EVs, and the Cadillac XT5.

This is great news if you’re in one of these communities, and it’s not a bad thing to have more jobs in America. This is especially true after the United Auto Workers negotiated much higher wages for their work.

That being said, will this, on a net basis, make the prices of those vehicles go up, considering it seems like much of that production is potentially offsetting Mexican production? Additionally, is this GM saying it doesn’t think the USMCA is going to survive? That’ll likely have upward cost impacts for consumers as well.

What I’m Listening To While Writing TMD

I woke up singing “Walkin’ on the Sun” by Smash Mouth this morning. I do not know why. Smash Mouth is one of those bands that people like to pretend to enjoy ironically while, in reality, enjoying entirely unironically. The bass line here is stellar. You love it. Don’t front.