The auto industry is facing some big challenges. Tariffs have raised the prices of cars and auto parts. Economic strains have pushed up defaults on car loans to people with less than stellar credit.
Yet sales of new cars in the United States are expected to have risen modestly in 2025, to about 16.3 million. Several large automakers, including General Motors and Toyota Motor, told investors Monday that they had closed out the year with strong sales.
How is that possible?
The auto industry has evaded a slump largely because affluent Americans with well-paying jobs and robust savings have continued to buy new cars at a decent clip. And they are more than making up for the cars that lower-income Americans are no longer buying.
Families with a household income of $150,000 a year or more now buy 43% of the new cars sold in the country, up from one-third of all cars sold in 2019 before the COVID-19 pandemic, according to Cox Automotive, a research firm. By comparison, households with incomes less than $75,000 are buying about a quarter of vehicles sold, down from more than a third in 2019.
“We are seeing a bifurcation of the market,” said Jonathan Smoke, Cox’s chief strategy officer. “Spending is consistently being driven by high-end consumers. Lower-income households continue feeling the strain of stretching their paychecks.”
Consider Dave Kasper, a resident of Ann Arbor, Michigan. At 61, he is retired after selling two businesses and has the budget to afford new cars and trucks.
Last summer, he bought his son a Ford Maverick pickup truck. The next day, he bought a Lincoln Navigator, a large, upscale sport utility vehicle, for himself. When he had problems with the Navigator’s brakes, he traded it in and bought a $93,000 Lexus TX plug-in hybrid SUV.
“I’m fortunate,” he said.
He is also an example of the well-off consumers who are keeping new-vehicle sales humming even as the auto industry battles tariffs, high interest rates, near-record prices and high default rates on subprime auto loans.
Some automakers Monday reported strong sales figures for last year. Toyota said it had sold 2.5 million cars and light trucks in the United States, up 8% from 2024. Its fourth-quarter sales also rose 8% from the same period a year earlier.
GM said its 2025 sales climbed 6%, to 2.9 million vehicles, but sales in the fourth quarter fell 7% from a year earlier.
New car sales are expected to dip in 2026 but not by much. Cox estimates that automakers will sell 15.8 million cars this year, a 2% decline but not far from the 16 million threshold that industry executives consider a good year. Of course, making predictions is hard, and analysts acknowledged that sales could slow more if the economy weakened sharply. One worrying sign is that sales in the final three months of last year were weaker than earlier in the year.
“We are losing momentum heading into the new year,” Smoke said.
Tariffs have increased prices of vehicles and parts for automakers, dealers and consumers, although not as much as many analysts had feared. Unemployment has crept higher, and consumer confidence has fallen in recent months.
Another big concern is the cost of auto loans. The average interest rate on car loans is 9.3%, up from 8.7% a year ago. Cox calculated that it takes more than 36 weeks of average income to buy a new vehicle, up from 34 weeks in 2019.
Partly as a result of those economic trends, a larger share of new cars are being bought by those with high incomes. Those buyers are opting for larger and pricier models, too. Sales of large SUVs, which have an average sales price of $77,000, grew 15% in 2025, according to Cox. Sales of medium cars with an average price of $33,000 fell 15%.
Car prices have been climbing for many years, but they really took off during and after the pandemic. In the spring of 2020, automakers were forced to idle factories for weeks, but production did not rebound quickly, because once plants did reopen they were hit by a shortage of computer chips. Those disruptions sharply reduced auto production from 2020 to 2023, leading to much higher prices.
Some consumers who delayed purchases in those years face the prospect of paying a lot more for a new car. The average age of vehicles on U.S. roads reached 12.8 in 2025, a record high, according to S&P Global, a research firm.
Even if their current cars are in good condition, some people are drawn to showrooms by the new technologies, such as driver-assistance systems, entertainment features and hybrids, which use less gasoline.
Wealthier Americans have continued buying new cars and trucks in part because their investments are doing well. Those who own large investment portfolios have seen their holdings appreciate, making many feel that they can splurge a little. Economists call this “the wealth effect,” and analysts say it appears to have driven up spending on cars and other goods.
It is not clear how long that trend will hold. The wars in Ukraine and the Gaza Strip, President Donald Trump’s erratic tariff policies and the slowing job market have weighed on spending decisions by consumers and businesses. In December, consumer sentiment as measured by the University of Michigan improved slightly from November but was down a lot compared with December 2024.
“I don’t think it’s going to get significantly better in 2026,” said Alan Haig, the president of a consulting firm, Haig Partners, that works with car dealers. “I just hope it doesn’t get worse.”
