The landscape of new car purchases is undergoing a significant shift, with a recent report highlighting how escalating costs are increasingly making entry-level vehicles out of reach for many consumers. This trend is largely driven by the implementation of trade tariffs and the looming expiration of vital electric vehicle tax credits, which together are creating an affordability crisis in the automotive sector. The market share for budget-friendly cars has seen a dramatic decline, underscoring a broader challenge facing both buyers and the industry. As prices continue to climb, a key segment of the car market is shrinking, pushing affordable options further away from the average consumer.

Dissecting the Automotive Affordability Challenge

In mid-2025, data from industry analytics giants Cox Automotive and Kelley Blue Book revealed that the average cost of a brand-new vehicle had climbed to an astonishing $48,907 by June, marking a 1.2% increase year-over-year. While numerous models are technically available below this figure, a deep dive by Cars Commerce, the parent company of Cars.com, indicates persistent challenges to affordability. David Greene, an esteemed industry analyst at Cars Commerce, pinpointed two major contributors: the lingering effects of tariffs on imported automobiles, initially imposed by the previous administration, and the anticipated discontinuation of federal EV tax incentives in September.

Specifically, the study uncovered a concerning contraction in the inventory of vehicles priced under $30,000. This segment, which constituted a substantial 38% of the market in 2019, has dwindled to a mere 13.6% of new car stock in the first half of 2025. A significant factor here is the heavy reliance on imports for these lower-priced models, with roughly 92% originating from overseas. Only a handful of vehicles in this range, such as certain versions of the Honda Civic and Toyota Corolla, are produced on U.S. soil. Despite a modest 3.9% year-over-year growth in this segment's dealer inventory, it pales in comparison to the 5.6% overall increase in new car stock.

Conversely, the 'mid-range' market, encompassing vehicles priced between $30,000 and $49,000, now dominates nearly half of all available inventory. Notably, half of these vehicles are also imports, suggesting that manufacturers are adapting to tariff conditions by focusing on higher-priced, more profitable segments. Furthermore, the share of imported luxury vehicles, those exceeding $70,000, saw a slight increase from 40% in May to 41% in June, hinting at a strategic shift towards the premium market to offset tariff impacts.

In the first half of 2025, dealerships strategically boosted their inventory by 5.6% in anticipation of the April tariffs. This forward-thinking approach, coupled with consumers' rush to secure pre-tariff pricing in March and April, led to a robust 3.9% rise in new car sales compared to the previous year. This surge also increased the availability of pre-owned vehicles, as many consumers traded in their existing cars before the new tariffs took effect. While used car prices initially experienced a slight dip in the first quarter of 2025, they quickly recovered with a 1.6% increase in the second quarter.

A critical point for the electric vehicle market: Cars Commerce's analysis highlighted that over half of EV purchasers cited federal tax credits as a primary motivation for their acquisition. With the $7,500 federal tax credit for new EVs slated to expire in September, there is concern that the impressive streak of 28 consecutive months of EV inventory growth may not be sustainable post-October.

The current state of the new car market is a complex interplay of economic forces and policy decisions. While the aim of tariffs might be to bolster domestic production and enhance affordability, the reality, as demonstrated by the Cars Commerce study, suggests a different outcome. The decreasing availability of entry-level vehicles, coupled with rising average transaction prices, indicates a growing accessibility gap for consumers. The impending expiration of EV tax credits further complicates this picture, potentially dampening the momentum of electric vehicle adoption. Moving forward, the industry, policymakers, and consumers will need to navigate these challenging waters, perhaps by exploring innovative approaches to production, supply chain management, and incentive structures to ensure that new vehicles remain within reach for a broader spectrum of buyers. The call for increased domestic manufacturing by companies like Volvo and Nissan is a positive sign, but it underscores a long and intricate journey towards a truly affordable and sustainable automotive future.