Is the Auto Market Showing Signs of Impending Doom?

Justin S
Created by: Jul 15, 2026 | Modified by: Jul 15, 2026

In 2021 and ‘22 the market was at an all-time high, the dealers were marking up the cars over MSRP and the cars were selling faster than they could get them on the lot. In fact, there were some real shortages with supply chain issues and increased demand; it was a seller’s market. A lot of dealers and manufacturers were reporting record high profit margins. However, as they say what goes up must come down.

With the new reality that involves tariffs, fierce competition in all popular segments and uncertainty brought on by war and instability, the auto market appears to be on the downturn as well. This is apparent with the VW Group effectively downsizing by reducing their model lineups amid plummeting profits. VW is not the only company that is beginning to feel the pain. Tesla’s profits per vehicle have plummeted and now resemble the per-unit profits from more mainstream offerings from brands like Toyota and Honda. Not that long ago, Tesla was as much as 8 times more profitable per vehicle than Toyota and now they are on about the same playing field. However, while Toyota is more accustomed to making do with marginal profits per vehicle, Tesla may not be able to adapt without some drastic changes. Some economists predict massive downsizing from a lot of the popular automotive brands.

While some vehicle sales have seen an increase in sales for the last quarter of 2026, the reported profits per vehicle are significantly less than just a couple of years back. For example, the Volkswagen Atlas saw an 18% sales increase, while the Taos saw a 43% decrease in Q2. Tariffs have a huge effect on not only price but also on what the manufacturers prefer to sell. Even if the vehicle that is assembled/exported outside the US has good demand, the manufacturer may be more incentivized to promote a more profitable product that has lower tariffs and higher profits.

Self-sabotage

It appears the downside is not all coming from external factors. Popular brands like Volkswagen invested a lot of resources into releasing new fully electric vehicles that the consumer simply did not want. The VW ID. Buzz was supposed to be a retro throwback that combined the cool styling and feel of the old VW bus with a modern fully electric platform. However, the consumer outright rejected this new vehicle for 2 main reasons. Unlike the original VW bus, which was affordable to the masses, the reimagined version averaged nearly $70,000. The second hit came when the ID Buzz was released during a time of overall softening demand for fully electric vehicles. It also does not help the fact that range anxiety is a serious factor to consider as the Buzz struggles to get 200 miles on a full charge in real-world conditions.

VW is not the only car company that missed the mark by releasing a product that most consumers did not want. Many other car manufacturers dipped their toes in building quirky all-electric vehicles that simple sat on the dealer lots for months before getting heavily discounted and sold to the first person that could barely qualify for a sub-prime auto loan.

New car company revenue models

It appears that a lot of car manufacturers are looking for alternative sources of revenue while cutting some less desirable models from the product lineup. Many car companies have started shifting from traditional one-time vehicle sales to a recurring revenue model driven by software, connectivity and mobile services. Toyota has already started implementing various subscription models for various tech features pre-installed on a lot of their new vehicles. While paying for something that is already pre-installed on your vehicle on a monthly basis is a highly unpopular revenue model amongst consumers, it appears that it is here to stay.

Effect on new car buyers

Even as car companies and dealers struggle to make a profit, car prices continue to soar, reaching historic highs. The average price of a new vehicle has climbed dramatically over the past several years, with many popular trucks and SUVs now carrying sticker prices well above $60,000. Even economy vehicles that once served as affordable transportation have become increasingly expensive due to tariffs, global markets and supply chain instability, added advanced technology, safety systems and rising production costs.

While car companies struggle to stay profitable, the consumer is having a harder time getting financing for new vehicles. It is not just higher new car prices that are affecting consumers; higher interest rates have pushed monthly payments to record levels, forcing many buyers into loans lasting six, seven or even eight years. For some households, a new vehicle has become one of their largest monthly expenses, rivaling a mortgage payment.

Another area that is being affected by these industry changes is auto lending. As vehicle prices and monthly payments have increased, some borrowers are finding it more difficult to stay current on their loans. Rising delinquency and repossession rates can place additional pressure on lenders while increasing the supply of used vehicles entering the market. Although today's lending standards are generally stronger than previous financial crises, growing financial stress among consumers remains something economists continue to monitor.

Consumer Confidence Matters

The economy and the state automotive industry conditions have a huge impact on the consumer’s decision whether to buy a new car or not. Vehicle purchases are often delayed when consumers become uncertain about the economy. Concerns over inflation, employment, housing costs or interest rates can cause buyers to postpone replacing their current vehicle. Additionally, there is a new element that has its thumb on the scales and that is the very real fear that AI will replace and displace a lot of people in the workplace in the coming years. Fear of an AI-driven industrial revolution is very real and is adding additional instability as workers fear that their jobs will be replaced by artificial intelligence.  This likely will continue to decrease consumer confidence as the nation and the world undergo rapid technological, economic and industrial changes. Because automobiles are expensive discretionary purchases, even small changes in consumer confidence can have a noticeable effect on dealership traffic and manufacturer sales.

Does This Mean the Market Is Headed for Disaster?

Not necessarily. The truth of the matter is no one truly knows what the future holds, but based on what we know now, it is possible to assume that there is light at the end of the tunnel and whatever challenges the world will bring, we will be able to face them together as a nation, as we have done countless times before.

The important thing to keep in mind is that the automotive industry has experienced numerous downturns throughout history and has consistently adapted to changing economic conditions. Many of today's challenges reflect a car market adjusting after an unusual period marked by pandemic-related shortages, unusually high demand, new technologies, and rapid price increases.

However, there are legitimate reasons for caution. High vehicle prices, elevated borrowing costs, slower sales growth, and intense competition are creating pressure throughout the industry. Manufacturers that fail to control costs or accurately anticipate consumer demand could face difficult decisions regarding production, pricing, and future investments.

What Buyers Should Do

For consumers who are in the market for a new car, it is important to know that there are still very viable opportunities that may help you find the right car for a reasonable price. As dealerships struggle to sell some of their inventory, they may be more open to taking lower-priced offers, especially for cars that have been sitting on the dealer lots for over 2 months. Buyers should always know that especially now the dealer’s price is not set in stone and compare prices carefully.

Avoid stretching your budget for unnecessary features and focus on long-term reliability rather than showroom appeal alone. Patience and careful research may prove more valuable than ever as the industry navigates its next chapter.