The automotive industry is facing major challenges. Tariffs have caused prices for cars and car parts to rise. Economic stress has led to an increase in defaults on auto loans to people whose credit scores are poor.
Still, new car sales in the U.S. are expected to have increased slightly to about 16.3 million in 2025. Several major automakers, including General Motors and Toyota Motor, told investors on Monday that they ended the year with strong sales.
How is that possible?
The auto industry escaped a slump largely because wealthy Americans with well-paying jobs and robust savings continued to buy new cars at reasonable rates. And they are more than compensation for the cars that lower-income Americans no longer buy.
Families with household incomes of $150,000 a year or more now buy 43 percent of new cars sold in the country, up from a third of all cars sold in 2019 before the Covid-19 pandemic, according to Cox Automotive, a research firm. By comparison, households with incomes of less than $75,000 purchase about a quarter of vehicles sold, up from more than a third in 2019.
“We’re seeing a split in the market,” said Jonathan Smoke, Cox’s chief strategy officer. “Spending is consistently driven by upscale consumers. Lower-income households continue to feel the strain of exceeding their salary.”
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. The next day he bought a Lincoln Navigator, a large, high-end sport utility vehicle. When he had problems with the Navigator's brakes, he traded it in and purchased a $93,000 Lexus TX plug-in hybrid SUV
“I’m lucky,” he said.
He's also an example of the wealthy consumers who are keeping new car sales booming even as the auto industry struggles with tariffs, high interest rates, near-record prices and high default rates on subprime auto loans.
Some automakers reported strong sales figures for last year on Monday. Toyota said it sold 2.5 million cars and light trucks in the U.S., up 8 percent from 2024. Sales in the fourth quarter also rose 8 percent compared to the same period last year.
GM said its 2025 sales rose 6 percent to 2.9 million vehicles, but fourth-quarter sales fell 7 percent from a year ago.
New car sales are expected to decline in 2026, but not significantly. Cox estimates automakers will sell 15.8 million cars this year, down 2 percent but not far from the 16 million threshold that industry managers consider a good year. Of course, it's difficult to make predictions, and analysts acknowledged that sales could slow even further if the economy slows sharply. One worrying sign is that sales in the final three months of last year were weaker than at the start of the year.
“As we start the new year, we’re losing momentum,” Mr. Smoke said.
The tariffs have raised vehicle and parts prices for automakers, dealers and consumers, although not as much as many analysts had feared. Unemployment has risen in recent months and consumer confidence has fallen.
Another big problem is the cost of car loans. The average auto loan interest rate is 9.3 percent, up from 8.7 percent a year ago. Cox calculated that purchasing a new vehicle requires more than 36 weeks of average income, up from 34 weeks in 2019.
Partly because of this economic development, a larger proportion of new cars are being purchased by high-income people. These buyers also opt for larger and more expensive models. Sales of large SUVs, which have an average selling price of $77,000, increased 15 percent in 2025, Cox said. Sales of midsize cars with an average price of $33,000 fell 15 percent.
Car prices have been rising for many years, but things really took off during and after the pandemic. In the spring of 2020, automakers were forced to shut down their factories for weeks, but production did not quickly recover as factories were hit by a shortage of computer chips after they reopened. These disruptions led to a sharp decline in automobile production from 2020 to 2023, resulting in significantly higher prices.
Some consumers who put off buying during these years can expect to pay much more for a new car. The average age of vehicles on U.S. roads reached 12.8 years 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 new technologies like driver assistance systems, entertainment features and hybrid vehicles that use less gas.
Wealthier Americans continue to buy new cars and trucks, in part because their investments are doing well. Those who own large investment portfolios have seen an increase in the value of their holdings, leaving many feeling like they can indulge themselves 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 this trend will last. The wars in Ukraine and Gaza, President Trump's erratic tariff policies and the slowing labor market have weighed on spending decisions by consumers and businesses. In December, consumer sentiment measured by the University of Michigan improved slightly compared to November, but was down significantly compared to December 2024.
“I don’t think things will get much better in 2026,” said Alan Haig, president of consulting firm Haig Partners, which works with car dealers. “I just hope it doesn’t get any worse.”