Car sales move into the slow lane. Is the economy downshifting, too?

By Jeffry Bartash

Vehicle sales decelerated in October - and more problems may be on the way

These cars aren't for sale, but dealers still have plenty of vehicles on their lots after a big drop in purchases in October.

Americans gave the economy a boost in the spring and summer by rushing to buy new cars to beat U.S. tariffs and take advantage of expiring tax breaks. Now it appears car shoppers are taking a backseat.

Sales of new cars and trucks fell almost 7% in October to an annual rate of 15.3 million, marking the fewest purchases in 17 months, according to Ward's Intelligence.

The figure reflects how many new vehicles would be sold in the entire year if the same number were purchased each month as were sold in October.

The chief reason for the decline in sales was the expiration in September of sizable federal tax breaks for the purchase of electric vehicles.

Sales may have also sputtered because of rising prices and the satisfaction of pent-up demand earlier in the year, economists say. Many people bought new cars in the spring before tariffs pushed up prices.

Whatever the case, the slowdown in sales is expected to persist through the end of the year and contribute less to the growth of the U.S. economy.

The biggest obstacle is the high cost of ownership.

Car prices just set a new record high, with the average cost of a new vehicle topping $50,000 for the first time, Kelley Blue Book reported.

Many current owners, for their part, are already struggling to make monthly payments and to cover rising insurance costs.

Missed car payments just hit a 30-year high and car repossessions have climbed to the highest level in 16 years. Some lenders have also become more skittish about providing credit for new buyers.

The soft sales could result in lower U.S. gross domestic product in the fourth quarter. Vehicle sales represent a big chunk of consumer spending, the main engine of the economy.

Some early estimates peg GDP growth at 2% or less, compared with 3.8% growth in the second quarter and possibly a 3% rate of growth in the third quarter. (Third-quarter GDP data have been delayed by the government shutdown.)

More problems for the car industry could also be on the way.

The labor market has cooled, jobs are harder to find and unemployment has crept higher. That could dissuade some potential buyers from taking the plunge.

What's more, higher U.S. tariffs on cars and parts haven't really filtered down to car prices. Dealers have kept prices somewhat in check to help sell off vehicles that were already on their lots before tariffs kicked in.

"So far, foreign and domestic automakers have largely absorbed the costs through their profit margins, but this isn't sustainable," Grace Zwemmer, associate economist at Oxford Economics, wrote in a note to clients.

"We doubt the full impact of tariffs will be passed along to consumers, but even a partial passthrough would likely slow sales," she added.

A slowdown in sales might not last long, though.

The Federal Reserve is cutting interest rates, and that will make car loans cheaper. And a new federal tax break on the interest paid on those loans will become available starting in 2026.

The economy is also expected to accelerate next year as trade wars fade, interest rates decline and hiring rebounds.

"Sales should get a boost in 2026 from fiscal stimulus and a faster pace of hiring, with new vehicle sales projected to climb steadily over the year," said Ben Ayers, senior economist at Nationwide.

-Jeffry Bartash

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11-04-25 1155ET