The first quarter of 2025 opened with a mix of optimism and uncertainty for the automotive industry. While March delivered a sharp 19% rebound in new vehicle sales — largely driven by consumers rushing to purchase ahead of tariff price adjustments — the earlier months of the quarter were marked by a slight decline. Used-vehicle sales, on the other hand, showed steady resilience, increasing 10% quarter-over-quarter.

Beneath these headline figures, however, the market revealed deeper challenges. Inventory levels for both new and used vehicles saw increases in carryover units, and aged inventory continues to weigh heavily on dealership profitability. At the same time, pricing trends are shifting, and the once-rapid adoption of electric vehicles (EVs) appears to be slowing. These developments point to a market in transition — one that demands sharper insights and more agile strategies from dealers and manufacturers alike.

Inventory pressures and pricing adjustments

Inventory management remained a central concern throughout Q1. New vehicle day supply dropped slightly by three days quarter-over-quarter to 77 days, but this still marked a 19-day increase compared to the same period last year. Used vehicle day supply also declined by three days, settling at 42 days, though this figure remains within a manageable range.

Despite these modest improvements in day supply, carryover inventory increased across the board. New vehicle carryover rose by 8%, while used vehicle carryover climbed 5%. These increases suggest that while vehicles may be turning slightly faster, a growing portion of inventory is aging on the lot — an issue that can quickly erode margins if not addressed through more precise pricing and stocking strategies.

Used-vehicle pricing reflected this pressure. The average list price for used vehicles declined 3% quarter-over-quarter and 4% year-over-year. This downward trend in pricing highlights the need for dealers to remain flexible and responsive to market conditions, particularly as consumer demand becomes more selective.

Diverging trends in EV, hybrid, and ICE vehicles

One of the most notable developments in Q1 was the divergence in performance between electric, hybrid, and internal combustion engine (ICE) vehicles. EV sales declined at three times the rate of ICE and hybrid vehicles, signaling a slowdown in consumer adoption. While the EV day supply dropped by seven days year-over-year — indicating improved turnover—pricing pressures persisted. EV prices fell 6% year-over-year, while hybrid prices declined 4%. In contrast, ICE vehicle prices rose 2%, suggesting continued demand stability for traditional powertrains.

This shift in consumer behavior reflects a more cautious approach to electrification. While long-term trends still point toward increased EV adoption, short-term dynamics are being shaped by affordability concerns, infrastructure limitations, and evolving government policy. Dealers and OEMs must be prepared to navigate this complexity by aligning their inventory strategies with real-time demand signals.

Brand-level performance and market dynamics

Performance varied widely across brands in Q1, with some OEMs capitalizing on shifting demand and others facing challenges with aging inventory and markdown activity.

BMW experienced strong EV momentum, particularly from the i4, while ICE vehicles dropped below 20% of its sales mix. Cadillac saw EV growth from the Escalade IQ and Optiq, though LYRIQ sales fell 41% quarter-over-quarter. Chevrolet posted a 17% quarter-over-quarter sales increase for the Equinox, and the redesigned Traverse helped reduce aged inventory by 67% year-over-year.

Ford’s Expedition Max led all models in markdown activity, with 91% of sold units marked down. This level of discounting underscores the importance of aligning pricing strategies with actual market demand to avoid margin compression.

These brand-specific insights illustrate the need for more granular, localized decision-making. Dealers and manufacturers must move beyond broad market assumptions and instead focus on the unique performance of individual models and trims within their specific regions.

Strategic implications moving forward

The Q1 2025 data reinforces the importance of proactive inventory control, dynamic pricing, and a deeper understanding of consumer behavior. As the market continues to evolve, success will depend on a dealer’s ability to adapt quickly and make informed decisions based on real-time insights.

Dealers and OEMs must refine their approach to inventory management by focusing on vehicle-level performance rather than relying solely on historical trends or national averages. This includes monitoring day supply, pricing shifts, and markdown activity at the VIN level to ensure that each vehicle is positioned for optimal turnover and profitability.

The divergence in EV, hybrid, and ICE performance also calls for a more balanced approach to electrification. While the long-term transition to EVs remains inevitable, short-term strategies must account for the continued strength of ICE and hybrid vehicles. This means maintaining a diverse inventory mix and being prepared to adjust marketing and pricing strategies as consumer preferences shift.

Looking ahead, the ability to anticipate market changes and respond with agility will be significant. Dealers and manufacturers that invest in data-driven decision-making and operational flexibility will be better positioned to navigate the uncertainties the rest of 2025 and beyond.

Len Short is the executive chairman of Lotlinx, which offers an inventory platform that can enable dealers to automatically adapt to market dynamics, mitigating inventory risk through VIN-specific strategies. For more information, visit www.lotlinx.com.