Jonathan Smoke said Tuesday he was more optimistic about prospects for the U.S. economy and healthy car sales than he can recall.
The chief economist for Cox Automotive said auto sales, which three months ago he expected to be nearly flat, have risen 2.2% from 2023. An economy that he had expected would be slowing is now “stabilizing.” Workers have seen their wages rise faster than inflation, but not so fast as to spur inflation.
“We can stop fretting about a soft landing and acknowledge we’re still flying. We’ve navigated restrictive rates, slowing job growth and increasing unemployment,” Smoke said during the Cox Automotive 2025 forecast call.
New car sales came in better than expected this year at 15.8 million, up 2.2% from 2023. In September, Cox Automotive had expected 15.7 million.
Cox Automotive is forecasting 16.3 million will be sold in 2025, up 2.8%. It expects retail sales of new cars to rise 1.7% to 13.3 million.
For used cars, Cox Automotive is forecasting 37.8 million will be sold in 2025, up 1.0% from 2024. It expects retail sales of used cars to rise 1.2% to 20.1 million.
Now, in the waning of the waning days of the Biden era, Smoke said we are in a “Goldilocks economy” that will continue into the next year under president-elect Donald Trump, growing “not too hot, not too cold, but just right.” He expects unemployment to remain at or below 4.2%, and interest rates to fall.
Smoke bases his optimism on the following:
- Trump tax cuts that will spur the economy.
- A shift in buyer psychology from waiting for prices and interest rates to fall, to buying now out of fear of missing out.
- Assuming Trump will go nowhere with his more extreme promises, foremost for Smoke being Trump’s promise to impose massive tariffs on imports.
Smoke explained the basis for this assumption that tariffs with logic reminiscent of safety advice commonly shared during the Cold War on how to maneuver one’s body in the event of nuclear bombs falling.
“We are not making any assumptions that major new tariffs will be implemented because frankly, if [they were], it would be a radical disruption of the vehicles that feed this market,” Smoke said.
“Not only is it a factor of where the vehicle is assembled, but there’s content in every single vehicle sold in the U.S. that comes from other countries. And North American production often involves vehicles and components, part of the assembly going back and forth across the border.
“So it literally blows the mind and would completely freeze up the market if indeed tariffs were to be implemented.
“So I would say our key assumption is that this is just early rhetoric that leads to new deals much as we experienced in 2018,” Smoke said.
Contact Jim DuPlessis at [email protected].
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