Federal Reserve advisor shares forces reshaping auto industry in 2025

Kristin Dziczek, a Federal Reserve Bank of Chicago policy advisor, described the 2025 auto industry as a shock absorber during the Automotive Insights Symposium held at the Detroit branch last week

“Last year, many of us didn’t know what to expect in 2025,” Dziczek said. “We were initially cautiously optimistic, but that quickly faded as the policy environment rapidly changed, and the uncertainty started to rise. Industry leaders put many plans on hold, and they were anticipating some major bumps last year.” 

By the third quarter, the picture became a bit clear, she said. Cautious optimism returned, and planning resumed. 

“It looks like the shock observers held us steady last year, like they’re supposed to,” Dziczek said. 

Tariffs were a defining characteristic of the year, she said. 

“So, we start off the year, January 20, with the America First trade policy memorandum,” Dziczek said. “By March, we had Liberation Day [where] tariffs on nearly every country in the world were announced.” 

The 232 national security tariffs placed 25% on autos in June, she said. Steel and aluminum tariffs also doubled. 

In November, a five-year extension of the import adjustment offset program was made for the auto industry. 

“The administration reached framework deals with the UK, Japan, EU, South Korea; apparently, India now. And that previous 2.5% tariff on imported vehicles jumped to a range of 10% to 15%,” Dziczek said. “We have several pending issues — the national security investigations into robotics and industrial machinery, critical materials, and semiconductors. There’s a possible increase in Korean tariffs, threats on Canada, an outcome of a Supreme Court case on the emergency economic powers that underlie many of those tariffs, and we’re all waiting for more things to happen.” 

More than $200 billion was collected by the government from the tariffs between January and October, she said. 

Auto and auto parts saw total duties paid jump 2.3 times to a peak of 25.7% in July last year, she said. The share dropped back to 18% in October, she said. 

“The stated goals of the American First trade policy were to protect U.S. national security, address unfair and unbalanced trade, promote investment in the U.S., and benefit American workers,” Dziczek said. “So, I want to look at a few of those metrics and whether we can see any movement toward achieving those goals last year.”

Dziczek said there has been a move back to the U.S. in some cases, including GM’s announcement that they would bring more truck volume to Fort Wayne. 

Overall, the share of U.S. sales built in the U.S. increased in 2025 from 51% to 57%, but that isn’t an abnormal peak, she said. Those sales fluctuate from a low of 51% in May 2020 to 58% in November 2021. 

There was an increase in the share of overall imports that were compliant for U.S.-Mexico-Canada (USMCA) duty-free status, she said. 

“Compliance increased sharply, but the auto tariffs compliance increased as well,” she said. “While sales volume rose about 2.5%, the volume of domestic light vehicle exports fell 20%, and light vehicle imports fell 13%.”

She said this has not resulted in an investment boom, adding that manufacturing remained flat through 2025. 

There was one plant investment by Rivian in Stanton Springs, Georgia, where ground was broken in September, she said. 

Dziczek said her former employer, the Center for Automotive Research, tracks automotive and supplier investments in North America. She said the data show that automotive and supplier investments vary from year to year. 

In 2023, for example, the United Auto Workers union was in contract negotiations, and multiple investments announced by Detroit’s major automakers, she said. 

“I can guess there’s going to be a similar spike in 2028 when they’re back at the table,” she said.

For 2024 and 2025, automaker investments were up 2.5%, and supplier investments were down by about 0.5%, she said. 

Total light-vehicle capacity utilization in the industry has been trending downward since Q2 2023, she said. 

U.S. employment trends have also been falling for about two years, she said. Automaker employment has been down 2.5% year-over-year, and suppliers down 3.8%, she said. 

Automaker vehicle production is down 2.6%, and about 1 in 4 manufacturing jobs lost between January and November last year were auto jobs. 

“Did companies become more profitable?” she asked. “Quarterly motor vehicle parts profits were under quite a bit of pressure.”

Some automakers fared better than others, she said. Many firms took substantial write-offs in the second half of the year tied to federal policy shifts away from EV incentives and other large one-time charges, she said. 

Supplier margins have held steady, remaining within the 6–6.5% range over recent years, she said. 

“But aggregate automaker margins have been cut in half from the 8% range to just 3.9% in quarter three,” Dzcizek said. “Automakers are clearly absorbing the bulk of the recent shocks.” 

Data from a MEMA survey of members found they were significantly more pessimistic about the next 12 months, starting in early 2024. An overall pessimistic opinion peaked in Q1, and the high mark for strong pessimism coincides with the 232 auto tariffs and Liberation Day, she said. 

By Q3 and Q4, pessimism remained high at an overall 47% but settled out, she said. The somewhat and significantly more optimistic responses more than doubled from Q1 at 11% to Q4 at 26%, she said. 

“Many people expect much higher price impacts, bigger shocks to new vehicle prices and even production disruptions stemming from the imposition of such high tariffs,” she said. 

As of October, the average tariff per vehicle has increased 552% year-over-year, but the average transaction price is only up 2.1%, she said. 

“One reason is for the price. Response has been muted as very few countries retaliated against the U.S. for tariff increases,” Dziczek said. “Costs for vehicles produced in global markets were less impacted. It’s also possible that not all of the tariff impacts have been passed on to prices. There are many places where tariffs could have been absorbed or offset.” 

Inventories made before tariffs could have muted the increases, she said. Automakers also may have delayed their price increases while waiting to see what tariffs and exemptions would be once settled. 

After tariffs were settled, automakers then worked to adjust their supply chains by dropping some imported vehicles and scaling back import volumes, she said. 

Some automakers also eliminated some standard features and moved those to paid options. Lease and purchase incentive programs were tweaked, she said. 

“There’s also been a lot of cost-cutting and cost absorption, including spreading U.S. tariff costs across the firm’s Global portfolios,” she said. 

Automakers found some relief in the import adjustment offset program and the relaxation of fuel economy targets, she said. 

“So despite all the tariffs, prices haven’t risen that much,” Dziczek said. “And demand was up in 2025. Still, nominal vehicle prices are north of $50,000, and affordability remains a major concern from consumers, the industry, and federal policymakers.” 

New-vehicle price inflation increased significantly in 2021 and 2022 during the chip crisis, she said. 

“It’s clear that higher prices absolutely crushed car buying sentiment, which has remained depressed since early 2021,” Dziczek said. 

Dziczek said a University of Missouri survey found that higher prices were an indicator of consumers saying it was not a good time to buy. 

New vehicles dipped below the overall inflation rate in 2023, but consumers may still be reacting to those higher price levels, not just lower rates of price increases, she said. 

Used-vehicle prices have remained close to the overall rate of inflation, she said. 

However, other costs for owning a car have increased significantly, she said. This includes vehicle maintenance, repair, and insurance. 

You can watch Dziczek’s presentation here.

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Kristin Dzichek speaks during the Federal Reserve Bank of Chicago’s Automotive Insights Symposium/Screenshot.