Strong 2025 Gives Way To Weak 2026

The last year has been good for automobile sales. Although looming tariffs and current tax credits tell the story of the past year, actual tariffs foretell lower sales in the coming year.

The 12 months ending September 2025 saw five percent more cars and light trucks sold than in the preceding 12 months. Prices rose a little, though not as much as overall inflation. Consumers shifted to slightly more-expensive vehicles, though not by much. In short, the big change was more units sold.

Strong Car Sales In 2025

Sales surged first in November and December 2023, then again in March, with most of the increase from buyers trying to get in before tariffs were imposed. Those sales, though, probably borrowed from the future. May and June sales dropped—but hardly below the prior year’s average. Then sales were strong again July through September. Some of the gain was buying before the tax credits for electric vehicles expired, but EV sales are not large enough to explain all of the recent strength. Consumers are simply spending more for cars.

Auto loan rates dropped in late 2024 and early 2025 as the Federal Reserve cut interest rates. Then interest rates leveled off. The September 2025 Fed cut has not yet spilled over to auto loan rates, but continued cuts certainly would. The Fed’s policy committee members expect rates to drop by about one percentage point by the end of 2026.

Credit availability is generally good, though not quite as good as a year ago. It may tighten a little as banks worry about a slower economy.

Tariffs Will Lower Car Sales In 2026

Tariffs, at about 25% of import costs, will push prices up. Cox Automotive estimates that tariffs will cost on imported cars will cost $5,500 on average, though only by $4,900 for those imports from Canada and Mexico. Domestically-assembled vehicles will face $1,000 in tariffs on imported components. These costs will be passed on to buyers eventually, but not necessarily right away.

Upcoming car sales will see two tariff-related impacts. First, to the extent that recent sales have been in anticipation of tariffs, they will reduce upcoming car sales. Those sales “borrowed from the future,” and the future is now here. Cars and light trucks had been selling at 16 million units a year, then got up to 16.9 million the most recent 12 months. So we may have sold 0.9 million units sooner than we otherwise would have. That will tend to lower future sales.

The second tariff effect is the pure price impact. Consumers will still drive and own vehicles, but with higher prices some people will keep their old cars and trucks running a little longer. Rough estimates of the price impact would be one million fewer new cars sold simply due to higher prices. That would put new car sales at 15 million units (using the pre-tariff sales level as the base).

Car buying would go lower if both effects have their full impact, perhaps to just over 14 million units. Lower sales are possible if the economy slumps.

Long-term Forecast Of Car Sales

This forecast has focused on short-term economic issues. Longer term, population growth and self-driving technology will drive trends. Our population is growing at a slow pace. Much of the country’s recent population growth came from immigrants. Now, however, with President Trump’s policies in effect, net international migration into the United States is about nil, or possibly even negative by a small amount. That makes increasing car sales unlikely as a long-run trend.

Waymos and other autonomous vehicles are certainly coming. (Back in 2016, I wrote, “Self-driving cars are coming, and they are coming quickly.” Fortunately, I did not define “quickly.”) The economics in that paper noted autonomous vehicles operated by ride services would be used more intensively than owner-driven cars. The need for new cars is mostly driven by mileage, not age, so shared cars will be replaced after fewer years of service, though not at fewer miles of service. That means car sales should not drop too much. And if autonomous vehicles leads to more miles being traveled, then annual car sales would increase.

In the short run, car makers and dealers will see lower sales. In the long run, more cars will be sold to fleets, which will alter the sales process. But that change is more than a couple years away.