Auto execs are hoping for one of the best and planning for the worst in 2026

DETROIT — The one consistency has been inconsistency for the U.S. automotive trade throughout the first half of this decade — a development that is anticipated to proceed amid difficult market situations in 2026.

The U.S. auto sector — an important driver of the economic system estimated round 4.8% of America’s gross home product — has endured rolling crises because the Covid-19 pandemic shuttered U.S. meeting crops in early 2020. The worldwide well being disaster was adopted by yearslong provide chain points, semiconductor chip shortages, political whipsawing, tariffs and different challenges for all-electric and autonomous automobiles.

Automakers have been surprisingly resilient throughout the challenges, however these points are actually combining with extra conventional trade issues of affordability and slowing client demand. That is all making a more difficult setting for automakers in 2026.

“We have got to plan for the worst and hope for one of the best,” Hyundai North America CEO Randy Parker informed CNBC throughout an interview. “That is the scenario that we’re in proper now.”

Different executives have expressed related sentiments as they put together for a “new” U.S. automotive trade: one which’s costlier, smaller and, by many means, much less predictable.

Automotive forecasters are calling for regular to decrease gross sales this yr, regardless of trade gross sales solely hitting 16.3 million items final yr. That was the best degree because the pandemic in 2020, however down from greater than 17 million for 5 consecutive years earlier than the worldwide well being disaster, in accordance with trade knowledge.

“Anybody within the auto trade … we must always all be very cautious about client demand,” Ford Motor CEO Jim Farley stated Jan. 13 throughout an occasion for the Detroit Auto Present. “That is actually essential.”

One of many largest trade points — and one which’s a end result of many components — is the affordability of latest automobiles.

New automobiles costs have climbed; the typical transaction worth was hovering round $50,000 towards the top of final yr, up 30% from lower than $38,747 to start 2020, in accordance with Cox Automotive.

Common transaction costs traditionally elevated on common 3.2% year-over-year, however from 2020-2022 that common almost tripled to 9%.

“Pandemic-induced manufacturing constraints and provide chain chaos did not simply disrupt the market quickly. They basically restructured pricing dynamics. This elevated plateau is now the brand new baseline, which has the market anchored at these greater worth factors,” stated Erin Keating, Cox Automotive senior director of financial and trade insights.

It isn’t simply automobile costs hitting customers’ wallets both. They’re additionally coping with inflation, will increase in upkeep and repairs, and 13% annual common will increase for insurance coverage over the previous 5 years, in accordance with Cox Automotive.

“The cumulative weight of all these will increase has pushed whole automobile possession prices past attain for a lot of middle- and lower-income households, constraining market entry and accelerating the affordability disaster,” stated Cox Automotive interim chief economist Jeremy Robb.

Cox Automotive stories it took 33.7 weeks of median family revenue to purchase the typical new automobile in November 2019. Now it is 36.3 weeks. That is down from a file excessive of 42.2 weeks throughout the pandemic, however nonetheless means automobiles value 1000’s of {dollars} greater than historic ranges.

David Christ, Toyota Motor’s U.S. gross sales chief, warned that the present tariff and commerce setting will trigger costs to proceed to extend this yr, regardless of the issues.

“On our finish, we’re simply taking it month-to-month, and we’re watching the rivals carefully,” Christ stated on a name with reporters earlier this month. “However we really feel costs are going to go up for us and for our rivals.” 

To fight the slower gross sales and affordability challenges, Toyota and different automakers have stated they’ll refocus on lower-priced automobile fashions — a change from latest years when automakers prioritized their most costly, extremely worthwhile automobiles throughout provide chain shortages.

“Each automaker should face the fact that the American market has modified for the foreseeable future,” stated Lance Woelfer, head of American Honda Motor’s U.S. gross sales.

For Honda, Woelfer stated meaning growing manufacturing on inexpensive trims in addition to specializing in licensed pre-owned automobiles, that are used however backed by firm warranties. For others, corresponding to Ford, that would embrace reentering deserted segments corresponding to sedans, in accordance with its CEO.

“By no means say by no means,” Farley informed reporters throughout the occasion in Detroit. “The sedan market may be very vibrant. It isn’t that there is not a market there. It is simply we could not discover a approach to compete and be worthwhile. Effectively, we might discover a approach to do this.”

Ford sells sedans outdoors of the U.S. however exited the home market with the cancellation of the Michigan-made Fusion in 2020. It additionally eradicated the bigger Taurus sedan and smaller Ford Fiesta and Ford Focus earlier than that.

Ford’s crosstown rivals Common Motors and Stellantis have largely exited the standard U.S. sedan market as nicely.

Affordability issues are producing consideration from outdoors the automotive trade as nicely. A Senate committee led by Sen. Ted Cruz, R-Texas, requested a listening to with CEOs from Ford, GM and Stellantis about affordability and different points within the automotive trade. The listening to was scheduled for Jan. 14 however was postponed amid scheduling conflicts and basic pushback from Ford about Tesla CEO Elon Musk not attending the assembly, in accordance with a letter from the corporate to the subcommittee that was obtained by Politico.

Automakers are additionally bracing this yr for probably risky U.S. laws and commerce negotiations, such because the upcoming renegotiating of the United States-Mexico-Canada Settlement that is scheduled for later this yr.

Presently, automakers can import new automobiles from South Korea or Japan with decrease tariffs than from Canada or Mexico, relying on their U.S. content material. The Trump administration has reached commerce offers on automobiles with these Asian international locations however not its neighbors to the north and south.

Relying on the end result of these discussions, USMCA might be a tailwind for automakers which have numerous manufacturing within the U.S.

“Seeking to 2026, our cycle work would counsel that autos would have a tough time outperforming given a comparatively flat y/y quantity outlook. Nonetheless, we see causes for optimism for US [automakers],” UBS analyst Joseph Spak wrote final month in an investor be aware.

Wall Road will start getting its first outlooks from automakers this week starting with GM asserting its fourth quarter and year-end earnings on Tuesday, adopted by Tesla on Wednesday.

GM CEO Mary Barra earlier this month reconfirmed that the automaker expects 2026 will likely be higher than 2025.  

GM’s 2025 steering included adjusted earnings earlier than curiosity and taxes of between $12 billion and $13 billion, or $9.75 to $10.50 adjusted EPS, and adjusted automotive free money circulation of $10 billion to $11 billion, up from $7.5 billion to $10 billion.

However relying on the automaker, Wall Road analysts anticipate combined outcomes for the U.S. trade because it continues to take care of unsure occasions.

“It’s laborious to think about how 2026 may convey extra exterior shocks and share worth divergence than 2025 however, with no seen finish to trade disruption, we’re additionally ready for surprises, impairments and strategic shifts,” Jefferies analyst Owen Paterson stated in an investor be aware this month.