2026 economic trends impacting the auto industry outlook

Key takeaways

In this article, you’ll learn about the impact of tariffs to the auto industry and understand the broader economic trends impacting the cost of auto ownership.   

The auto industry is one of the biggest drivers of the U.S. economy, representing 3% of the Gross Domestic Product (GDP).¹ The industry has been on a wild ride since the start of the pandemic with supply shortages, rising prices, higher interest rates, and new tariffs. Learning how these trends might affect your clients gives you an opportunity to help provide valuable insights to help them plan.

How the current auto industry supports the U.S. economy

The auto industry is an important barometer for the overall health of the U.S. economy. Auto production is a key component of overall manufacturing activity in the country, especially for those local communities that support the production lines. More than 1 million people work in the auto sector with downstream employment impacts across nearby businesses. Vehicle purchases are also a driving force of overall consumer spending. The vast majority of households own at least one car and buying a vehicle is one of the most important financial decisions that people make. When the auto industry is expanding and doing well, it’s a sign that the U.S. economy is moving in the right direction. 

2026 economic trends impacting the auto industry

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Auto market outlook: Driving toward affordability  

Economic impact of tariffs for automakers

2025 was another turbulent year for the U.S. auto industry. The Trump administration made the industry a centerpiece of its big tariff policy changes. Last spring, 25% tariffs on imported autos and auto parts were announced, this was followed by imposed tariffs up to about 50% for imported steel and aluminum², key inputs for the actual production of most vehicles. While there was some easing of these rates for specific countries later in the year, due to trade agreements and some offsets, these rates largely have remained in place.  

Now at the start of 2026, we can get a clearer picture of what changes these tariffs caused and the impact on the industry. Most automakers noted that they saw losses last year tied directly to the tariffs and the higher cost, particularly for the production of many vehicles. Toyota predicted later in the year that they lost about 9.5 billion dollars over 2025³ due to tariffs and this followed up some similar reported losses by other automakers, including General Motors.  

The tariffs forced a reassessment by the industry about what type of cars the industry can make and where to produce them, all with the effort of making things profitable. The compression of profit margins forced many automakers to realign their supply chains.

They looked for ways to minimize costs, shifting some import sources to domestic, or increasing auto production within the U.S. to try to avoid the tariffs altogether. Another strategy was cutting the production of cheaper vehicles that had a higher share of production done overseas. Given all of the disruptions, it’s not surprising that we did see that total U.S. car production was down in 2025 from 2024.  

How tariffs impacted consumer demand

On the demand side, consumers worried about what the tariffs would mean for the price of autos, along with concerns about elevated interest rates. Despite these concerns, total light vehicle sales grew to 16.2 million units, a modest uptick from what we saw in 2024.⁴  

There was an initial surge early in the year to buy cars ahead of the tariffs and that faded in the summer. An additional surge came in August and September, around electric vehicles (EV) as the federal EV tax credit expired on October 1. While there was volatility in the sales over the year, the underlying pace of demand for cars remained steady. When you look at the numbers, consumers continued to prefer light trucks, SUVs and crossovers that comprise more than 80% of total sales² on the year. Overall, there was a shift towards domestic made vehicles as the costs crept up for imports.  

Car affordability

According to Kelley Blue Book, the average price of a new vehicle crossed $50,000 late in 2025⁵ for the first time ever, and that made a bunch of headlines. Many people were focused on affordability, but when you look back at the numbers for the past couple years, that $50,000 number is only up from an average of $48,000 in 2024.  

We’re not seeing big increase in prices, but production costs have gone up. Most car manufacturers decided to absorb much of the cost increase instead of passing them along to the sticker prices that consumers see at auto dealerships, resulting in the losses many auto manufacturers reported last year. 

Looking ahead to this year, the mix of available cars to purchase is more expensive. Automakers are pushing out more expensive models and inventory of used cars is still tight, so many consumers looking to buy a car this year may feel that it’s still a bit of a stretch when you look out at the current market conditions.  

We’ve created a measure, the Nationwide Auto Affordability Index, as a way of illustrating how manageable a typical monthly car payment is for the average household. It pulls together three big pieces: auto loan rates, median family income and the prices consumers are actually paying for cars. The index is built so that a higher reading means cars are more affordable relative to income, not less.  

The most recent reading is almost exactly in line with its 10-year average. In other words, based on the relationship between income, interest rates and prices, car payments today look pretty normal. In fact, the index is noticeably higher than it was through most of the 2010s during the long period of recovery from the Great Recession. In the last few years, affordability has actually improved. Prices have climbed, but that’s been offset by a combination of lower interest rates and steady income growth. Those two forces together have helped to bring the typical monthly payment back into a more comfortable range relative to earnings.

There’s a clear gap between how expensive cars feel and what the numbers actually say and this probably has more to do with what is happening in the rest of the household budget. When looking at housing, for example, the National Association of Realtors Housing Affordability Index is extremely low by historical standards—that means mortgage payments are eating up a much bigger chunk of income than normal. Childcare costs have also been climbing rapidly and putting pressure on a lot of families, along with an increase in weekly expenses like groceries. 

With those rising costs, it’s not that the car itself has suddenly become wildly unaffordable; it’s that everything else around it has. 

The cost of car ownership

The car can sometimes feel more expensive not because of the purchase price, but because the cost of ownership has climbed. Over the past year, we’ve seen a noticeable rise in the cost of keeping a car on the road. Motor vehicle repair costs climbed 6.2% in 2025. The median monthly inflation rate for repairs in the last three years has been 9.7%⁶ and one of the biggest reasons is that cars are staying on the road longer. The average vehicle age in the US is now around 12.7 years, a record high that’s expected to climb even further, and older cars simply need more frequent and more expensive attention. Today’s vehicles, whether gas, hybrid or electric, are far more complex than in the past. Advanced safety systems, electronics, sensors, and calibration requirements all mean repairs take more labor hours and more specialized skills.  

Another piece of the puzzle is wage pressure in the repair industry. There’s been a shortage of qualified automotive technicians for several years, and shops have had to raise pay to attract and retain skilled workers. The higher labor costs are handed down to the consumer.  

Even though the monthly payment on a new car might look reasonable by historical standards, the after the fact expenses, repairs, maintenance, labor, insurance, these have all been moving up and that’s definitely contributing to car ownership feeling heavier on the budget today.  

Last year, households making less than $75,000 annually only made-up about 20% of new sales in 2025. That compares to 37% in 2019, according to data from Cox Automotive.⁷ The market in 2026 may be dominated by many of those middle, upper middle to higher income buyers looking for more expensive features, and luxury brands.  

2026 outlook for the auto industry

As we expect for the broader U.S. economy in 2026, we forecast more stable and consistent growth for the auto sector after the turbulence of 2025. Many automakers are optimistic that demand for autos should remain on solid footing in 2026, we project light vehicle sales to be about 16.1 million units over 2026, likely seeing momentum into 2027.  

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