Upcoming Summer Markets are Clouded in Uncertainty, Yet May Offer a Pivotal Solution
The summer auto market of 2025 is witnessing a surge in consumer demand for larger vehicles, particularly SUVs and electric vehicles (EVs), while traditional options like sedans, diesel cars, and manual transmission vehicles are losing popularity [1]. This shift towards practicality and sustainability is placing dealers under a "big squeeze," as rising manufacturing costs and MSRPs (manufacturer’s suggested retail prices) collide with flat consumer affordability, putting pressure on dealer margins [3].
According to the Manheim Used Vehicle Value Index, wholesale used-vehicle prices are displaying a mixed but overall slightly increasing trend year-over-year, with some month-to-month variation largely influenced by seasonal adjustments and tariff impacts [2]. For instance, prices rose 1.6% month-over-month in June 2025 after a 1.4% decline in May, driven by seasonal factors and tariff-related supply disruptions [2]. All major vehicle segments gained in June, including luxury cars (+1.2%), trucks (+1.1%), compact cars and SUVs (+1.0%), and mid-size sedans (+0.8%) [2]. Year-over-year wholesale prices increased about 6.3% as of June 2025, marking the largest annual rise since August 2022 [2].
By mid-July 2025, wholesale prices had slightly declined month-over-month by around 0.5-0.7%, according to adjusted Manheim data, but remained up roughly 2.6-2.9% compared to the previous year [4][5]. This softening in July is attributed partly to seasonal adjustments and the ongoing tariff environment, although used EV prices remain higher than last year despite some soft month-to-month dips [4]. Meanwhile, wholesale inventory levels remain relatively low, and retail demand is strong, which supports price resilience despite volatility [2][4].
In May 2025, every segment experienced a decline compared to April, with midsize cars dropping by 0.5%, trucks rising by 0.5%, electric vehicles (EVs) increasing by 2.0% year-over-year but decreasing 2.0% month-over-month, compact cars decreasing by 1.2%, and SUVs decreasing by 1.0% [1]. The Cox Automotive's Manheim Used Vehicle Value Index fell to 205.9 in mid-month [1]. On a non-adjusted basis, wholesale prices decreased 1.1% in the first half of May compared to April [1]. To date, this year's May depreciation is stronger than usual. The Index is 4.4% higher than the full month of May 2024, and the overall industry decreased by 1.1% compared to May 2024 [1].
Inflation expectations have worsened, with 1-year inflation forecasts jumping to 7.3% and 5-year forecasts climbing to 4.6% [1]. Additionally, the average daily sales conversion rate was 59.3%, up from 55.5% a year ago [1]. MMR Retention averaged 99.1%, slightly under valuation models [1]. Wholesale used-vehicle supply remained flat at 24 days as of May 15 [1].
In summary, the summer 2025 auto market is marked by rising consumer preference for SUVs, crossovers, and EVs, dealers coping with cost increases amid limited consumer price growth, wholesale used-vehicle prices experiencing seasonal volatility and tariff-related disruptions but showing solid year-over-year growth according to the Manheim Index, used EV prices maintaining strength despite some monthly softening [1][2][4][5], and wholesale inventory levels remaining relatively low and retail demand strong [2][4].
The surge in consumer demand for electric vehicles (EVs) and larger vehicles, such as SUVs, in the summer 2025 auto market is posing a challenge to the auto retail industry with rising manufacturing costs and MSRPs clashing with flat consumer affordability [1]. Consequently, the finance sector must develop strategies to support dealers in this business, as continued demand for electric vehicles will undoubtedly shape the future of the industry.
Given the strong retail demand for used EVs and solid year-over-year growth in wholesale used-vehicle prices, private equity firms and investors may see potential investment opportunities for financing EV-focused auto businesses, thereby capitalizing on this burgeoning trend in the auto retail industry.
