Back in 2020, I was ready to buy a new Toyota RAV4 PRIME plug-in hybrid, but I refused to pay more than MSRP for one. Glad I waited for the used 2020 Tesla Model Y AWD at $40,000-off it’s 2020 price back in April 2025. It’s a more capable vehicle, and it’s always better to find someone else to pay the first few years of depreciation on a new car.
Humphrey Yang’s video analyzes the mounting problems in the 2025 U.S. car market, emphasizing that a major correction is underway and that buyers should proceed with caution. Here are the main points:
Market Recap and Pandemic Impact: The car market changed dramatically after 2020, with supply shortages, production cuts, and stimulus-fueled demand driving prices well above MSRP. Dealer markups became common, and even used cars sometimes sold for more than new ones1.
Dealer Markups: From 2021 to 2023, most buyers paid over MSRP for new cars. This trend inflated used car prices and distorted the market, with some vehicles selling for tens of thousands over their sticker price1.
Financing Problems and Negative Equity: Many buyers from the pandemic era are now “underwater” on their loans, owing more than their cars are worth. Nearly one in four trade-ins has negative equity, with the average upside-down loan at a record high. Higher interest rates (now over 6% for new cars, 11.6% for used) and soaring insurance costs have pushed average monthly payments to $742, with some exceeding $1,0001.
Rising Inventory and Industry Panic: Inventory levels have surged—up 120% since 2023—with 3 million unsold cars now sitting on lots. Manufacturers are offering more incentives, but layoffs and profit declines at major automakers (like Nissan, which cut 9,000 jobs and considered merging with Honda) signal deeper structural troubles1.
Tariffs and Future Uncertainty: New 25% tariffs on imported vehicles and parts could further raise prices and reduce demand. Automakers warn of additional price hikes, and the industry faces a “perfect storm” of high interest rates, excess inventory, layoffs, and wary consumers1.
Outlook and Advice: Yang expects car prices may eventually fall as the market corrects, but warns that tariffs could complicate this. He advises buyers with negative equity to avoid trading in or selling at a loss if possible, and suggests holding onto vehicles until positive equity returns1.
The overall message: The car market is in turmoil, with high costs and risks for both buyers and sellers. A correction seems likely, but external shocks (like tariffs) could delay or disrupt the return to normalcy1.
And what are we looking at, going forward? A new “shortage” that well positioned OEMs can leverage to make fat profits. Half of Toyotas and Hyundai’s sold in the US are imported, as are nearly all Mazdas, and most VWs. There have been several announcements of individual model production being moved to, or increased, in the US, but you can’t turn a production slate on a dime. I doubt there is enough idle capacity for Hyundai and Toyota to build everything here. So, a return to the “happy time”, when OEMs and dealers could gouge the living daylights out of their customers, while telling them “you’re lucky to get anything right now”.
That’s what I’m anticipating now. I have a 2011 Rav4 which is nearing the end of its useful life, so I was planning on buying a car this year. However, with the tariffs I’m guessing that won’t be a good idea.
On the flip side, TIG is determined to induce a recession, so maybe that will pull down car prices.
