In 2026 US auto demand down-shifts but what’s next?

US auto demand has downshifted as automakers re-examine their options as they try to dodge the potholes in the road ahead.

Headwinds:

Henry Ford, the inventor of the mass-produced “Model T”, the auto assembly line and also what would now be called the “auto logistics” or auto “supply chain” is credited with saying, “When everything seems to be going against you, remember that the airplane takes off against the wind, not with it.”

And the pithy commentary might suit the situation currently facing US automakers and their foreign counterparts. Certainly, the economic headwinds are blowing a gale, and everything does seem running against the US automakers.

Take for example, tariffs. The Trump Administration’s goal behind the implementation of tariffs was to spur US manufacturing by protecting US manufacturers from foreign competition. But there are few supply chains as globally intertwined as those supporting the auto industry. Consequently, tariffs and other Administration directives like the elimination of Electric Vehicle (EV) tax credits, the near abolishing of the EPA emission standards, not to mention the ongoing spats with major auto producing nations, like Canada, Mexico (the North American auto industry accounts for around 22% of the total trade under the USMCA), South Korea, Japan (Toyota’s largest vehicle manufacturing plant is in Kentucky) and the EU — all of who have massive investments in the US auto sector.

But thus far the administration’s efforts have largely had the opposite effect: raising auto manufacturing costs while dampening demand. Further, the administration’s tactics have done little to change the US consumers’ appetite for foreign cars as in every month since 2024, imported autos have accounted for over 30% of total auto sales and in January 2026 (the month for the latest figures) the percentage peaked at 39.1%.

Auto Demand in Demanding Times

Cox Automotive, which chronicles the economic performance of the US auto industry, in their sales forecast released on February 24, 2026, noted, “The seasonally adjusted annual rate of sales (SAAR) in February is anticipated to be approximately 15.6 million. This figure represents a decline from last year’s 16.0 million level but marks an increase over January’s weather-affected pace of 14.9 million.”

The report added, “…new-vehicle sales volume is expected to finish at 1.19 million, down 3.4% from last February, which had the same number of selling days. Compared to January, new-vehicle sales volume is forecast to rise by 6.9% in February, with two fewer selling days, which is the typical seasonal trend.”

While being down 3.4% for a monthly year-to-year comparison may not seem too significant, it is part of a worrying trend for the US auto industry.

As Charlie Chesbrough, senior economist at Cox Automotive said, “February’s SAAR is expected to improve on January’s weather-impacted 14.9 million level but still reflect the harsh headwinds facing vehicle buyers.... Also, the market is slowing due to ongoing concerns about the US economy and high new-vehicle prices. These conditions are expected to be major headwinds for the new-vehicle market throughout 2026.”

PricewaterhouseCoopers (PwC), one of the “Big Four” global accounting firms, pointed out in their January Automotive Outlook 2026, it wasn’t just the American consumer suffering sticker shock at new vehicle prices. According to PwC’s report, “New vehicle prices in the US and Europe have increased sharply—rising on average by 15–25% since 2020—driven by inflationary pressures, semiconductor scarcity, raw material cost surges, and supply chain constraints. The average transaction price (ATP) for new vehicles in these regions now consistently exceeds $45,000, pushing affordability beyond the reach of many consumers.”

Edmunds, which publishes a number of different guides to car shopping (a subsidiary of CarMax), had a keen observation on the divide among US car buyers. In their December 2025 report “Three Trends That Will Shape the US Auto Market in 2026, Edmunds outlined the developing divide between the have and have-nots when it comes to buying new vehicles stating, “In 2025, affordability emerged as the auto industry’s biggest barrier to growth (editor’s italics) creating a K-shaped divide between shoppers who can absorb today’s prices and those who can’t. Higher-income buyers who remain in the new-car market are still choosing larger, higher-priced vehicles and aren’t trading down or making cost-driven compromises. In contrast, many price-sensitive shoppers have been pushed out of the new-vehicle market entirely as elevated monthly payments put ownership out of reach.”

Cox Automotive said of this impact of the auto buyer dichotomy with the emergence of wealthy top tier buyers outpacing the average and lower income buyers, “In an increasingly fickle economy, upper-income households are thriving amidst rising home values and tax breaks, while lower-income households remain squeezed by affordability pressures. Within this economy, disposable income growth is concentrated at the top 40%, and that’s where much of the spending power will reside this year [2026]. So, while dealers may see things such as lower down payments on used cars and slipping savings rates, wealthy consumers are far more likely to pay cash for new cars, which lowers dealer profitability.”

This is a troublesome trend for the automakers as Henry Ford thought, mass production and all the automakers that followed, based their success on making vehicles affordable to the average US auto buyer. Already we are seeing lower cost (even with tariffs) with foreign auto imports filling the price gap, as is reflected in the 30% plus slice of US auto sales. Indicative of the trend, despite duties, Toyota exported 615,204 vehicles to the US in 2025, a 14% increase over the 2024 total. Importantly, out of the estimated 2.52 million to 2.93 million vehicles Toyota sold in the US, over 1.18 million electrified vehicles (largely hybrids), were representing 47% of total volume.

And while the Trump Administration’s “Big Beautiful Bill”, passed last July in 2025, should give US taxpayers higher refunds this year, which in turn could provide a small boost to auto sales over the next quarter, it won’t change the auto industry’s fundamentals that drive demand — the American consumer is feeling the pinch and autos are a big ticket item. An auto is often an American family’s single most expensive purchase. And automakers and auto dealers are finding it is now a hard economic environment to sell in. As PwC wrote, “The high transaction price environment has forced automakers to recalibrate expectations for volume growth, shifting emphasis toward margin preservation.”

What’s Next…?

Exactly how “margin preservation” for automakers will manifest itself greatly depends on the automaker. Sticking to the MRSP sticker price is one translation of the process — especially for the dealerships making the sales to the consumer.

But the US auto industry and its foreign counterparts are desperately seeking solid footing in a chaotic economic and geo-political maelstrom that now features an all-out war between the Israel-US forces and Iran, which is crippling petroleum shipments throughout the Middle East and driving up gasoline prices, not to mention the transport of autos and auto parts. All of which is worrisome for auto manufacturers.

And a big deal is looming in the very near future (July) with the negotiations for the renewal of the USMCA. Should the Trump Administration choose to back-out of the deal (a very real possibility), the automakers stand to take the hardest hit.

While Henry Ford’s stoic advice of taking-off against the wind might have merit, it is also worth noting that little takes-off when the runway is cratered with gaping holes.