The good news: New vehicle sales are on track to rise 6.2% YoY in Q3, led by strong gains at the four biggest automakers: GM (7.1%), Toyota (17.3%), Ford (8.4%), and Hyundai (12.9%), per Cox Automotive.

• The looming expiration of EV tax incentives on Tuesday fueled record sales of 410,000 EVs in Q3, up 21.1% YoY and pushing EVs 9.9% of all vehicles sold, well above the prior record of 8.7% in Q4 2024.
• Those gains led Cox to lift its full-year baseline forecast to 16.1 million vehicles, up from 15.7 million at the end of Q2 and just above the 16.0 million sold last year.

The bad news: Despite the upbeat numbers, the industry is steering straight into flashing red warning signs.

• CarMax, the nation’s largest used-car seller, reported Q2 sales fell 5.4% and profits plunged 24.7%, with each month weakening sequentially.
• Ford is making a risky bet by offering promotional financing to buyers with weaker credit histories to move F-150s, per The Wall Street Journal.
• Volkswagen and Porsche are cutting staff and output to offset weak sales in the US and China and the cost of tariffs.

Fresh off its best-ever month of EV sales in August, GM is pulling back.

• The company is furloughing 700 workers at its Spring Hill, Tennessee, plant after Honda canceled plans for a 2026 all-electric Acura ZDX that GM was set to build, according to the Detroit Free Press. The plant, which also produces Cadillac’s Lyriq and Vistiq EVs, faces several weeks of downtime to realign production with inventory.
• Separately, GM is laying off 360 workers at its Detroit EV plant for at least a month to scale back output of the GMC Hummer EV and Cadillac Escalade IQ.

Stiffening headwinds: Industry challenges are set to intensify.

• EV sales are likely to hit a rough patch after tax incentives expire.
• Broader market conditions may tighten as pulled-forward sales thin out demand, while tariffs push manufacturers to offset rising costs with higher prices and fees.
• Margins are already being squeezed as automakers absorb part of the burden.

Our take: The auto industry needs to buckle up for a bumpy ride, with challenges unlikely to ease anytime soon. EV demand is set to wane without tax incentives, while rising prices and broader economic pressures keep overall demand thin. Premium sales may prove resilient, but the lower and middle tiers will likely be stuck in a difficult spot for some time.