This piece by the Center for Automotive & Mobility Studies at Northwood University is featured in the 2025 Summer edition of When Free to Choose, Northwood’s signature publication dedicated to promoting the importance of free enterprise.
As the second quarter of 2025 unfolds, the U.S. economy stands at a crossroads. While still the world’s largest economy, according to the International Monetary Fund, America faces growing uncertainty. Some economists warn of an impending recession, while others point to troubling signs that are already taking hold — from falling stock markets and shrinking household wealth to slowing GDP and declining auto sales. These economic headwinds are casting long shadows across major industries, especially the automotive sector, and raising critical questions about the road ahead for free enterprise and prosperity in America.
A Negative Wealth Effect
The decline in U.S. wealth in the second quarter of 2025 is off to a shocking start. As of April 10, total U.S. wealth has fallen by more than $10.5 trillion due to a substantial collapse in the four major U.S. stock indices. At the time of this writing, gold had set numerous new highs and was at $3,247.40, driven by worries of global instability and economic contraction. The Dow Jones Industrial Average, NASDAQ, and S&P 500 were down 7.50%, 11.53% and 7.80%, respectively, at the end of April 2025. Falling stock prices have adversely impacted 401Ks, pension funds, stock portfolios, and more to the tune of more than $10 trillion in 2025. This negative wealth effect will certainly make it more difficult for many Americans to finance an automobile and many other purchases this year. JPMorgan believes there is a 60% chance of recession in 2025, with home values appreciating at an average of 3%, well below Bankrate’s forecast for Q1.
Headwinds
With current U.S. household debt exceeding $18 trillion and U.S. credit card, automobile, and mortgage debt accelerating, a vibrant and growing U.S. economy is essential for robust economic growth and an annual GDP of 2.75%. So far in 2025, the U.S. economy has been sluggish at best. The U.S. Bureau of Economic Analysis released its preliminary GDP figures at the end of April with initial U.S. GDP coming in at -0.3%, more negative than most economists predicted, driven by tariff policy and reduced government spending. Tariffs are negatively impacting small business activity, as measured by the National Federation for Independent Business’s Expectations Index, which is at its second-worst level since inception. Small business leaders place tariffs as the culprit, believing they will lead to higher costs and supply shortages relative to their business needs. The McNair Center for Free Enterprise at Northwood University believes tariffs are creating unexpected burdens on the economy while delaying tax and regulatory reform.
Signals from the Auto Industry
The U.S. automobile industry remains one of America’s largest job producers, from manufacturing and engineering to sales and marketing. However, numerous experts predict turbulent times and significant layoffs for the U.S. auto industry in 2025, citing tariffs, increasing electric vehicle sales, general economic headwinds, and a nervous U.S. consumer. By year’s end, many believe the result will be layoffs of 165,000 or more auto industry employees. In addition, Cox Automotive recently reduced its forecast for automobile, light truck, and SUV sales by 700,000 units to 15.6 million in 2025, below 2024’s actual total of 15.9 million.
Conclusion
In accomplishing the revised Cox sales goal, manufacturers and dealers will likely realize lower profits partially due to tariffs and will need to offer additional price and finance incentives. American automobile consumers seem overburdened with debt and doubt, relative to their jobs and the economic road ahead.
About the Author
Dr. Timothy G. Nash is the director of the McNair Center for the Advancement of Free Enterprise and Entrepreneurship at Northwood University. This piece originally was featured in the newest edition of DRIVEN, a periodical from the Center for Automotive & Mobility Studies (CAMS) Research Institute at Northwood University. It was updated for the Summer 2025 edition of When Free to Choose, Northwood’s signature publication dedicated to exploring the importance of free enterprise. Click here to subscribe to When Free to Choose at no cost.
