Auto executives hope for the best and plan for the worst in 2026

DETROIT — The only consistency has been the inconsistency of the U.S. auto industry during the first half of this decade — a trend that is expected to continue amid a challenging market environment in 2026.

The U.S. auto sector — a crucial driver of the economy estimated at about 4.8% of U.S. gross domestic product — has weathered recurring crises since the Covid-19 pandemic shuttered U.S. assembly plants in early 2020. The global health crisis was followed by years-long supply chain problems, semiconductor chip shortages, political blows, tariffs and other challenges for fully electric and autonomous vehicles.

Automakers have been surprisingly resilient in the face of challenges, but these problems are now combining with the industry’s more traditional problems of affordability and slowing consumer demand. All of this creates a more challenging environment for automakers in 2026.

“We have to plan for the worst and hope for the best,” Randy Parker, CEO of Hyundai North America, told CNBC in an interview. “That’s the situation we find ourselves in right now.”

Other executives have expressed similar sentiments as they prepare for a “new” American auto industry: one that is more expensive, smaller and, in many ways, less predictable.

Auto industry forecasters expect sales to be flat or even down this year, even though the sector’s sales reached just 16.3 million units last year. This is the highest level since the 2020 pandemic, but down from more than 17 million for five consecutive years before the global health crisis, according to industry data.

“Anyone who works in the auto industry…we should all be very careful about consumer demand,” Ford engine said CEO Jim Farley on January 13 during an event for the Detroit Auto Show. “It’s really important.”

One of the industry’s biggest problems – and one that is the result of many factors – is the affordability of new vehicles.

Prices of new vehicles have soared; the average transaction price hovered around $50,000 toward the end of last year, up 30% from less than $38,747 at the start of 2020, according to Cox Automotive.

Average transaction prices have historically increased by an average of 3.2% year-over-year, but from 2020 to 2022, that average has nearly tripled to 9%.

“Pandemic-induced production constraints and supply chain chaos have not only disrupted the market temporarily. They have fundamentally restructured pricing dynamics. This high plateau is now the new benchmark, which keeps the market anchored to these higher price levels,” said Erin Keating, Cox Automotive’s senior director of economic and industry research.

It’s not just vehicle prices that hit consumers’ wallets. They also face inflation, increased maintenance and repairs and an average 13 percent annual increase in insurance over the past five years, according to Cox Automotive.

“The cumulative weight of all of these increases has pushed the total cost of vehicle ownership out of reach for many middle- and low-income households, limiting market access and accelerating the affordability crisis,” said Jeremy Robb, interim chief economist at Cox Automotive.

Cox Automotive reports that it took 33.7 weeks of median household income to purchase the average new vehicle in November 2019. Today, it’s 36.3 weeks. That’s down from a record 42.2 weeks during the pandemic, but it still means vehicles cost thousands of dollars more than historic levels.

David Christ, Toyota engine The US sales chief warned that the current pricing and trade environment would see prices continue to rise this year, despite concerns.

“On our end, we just take it month by month and we watch the competitors closely,” Christ said on a call with reporters earlier this month. “But we think prices will increase for us and for our competitors.”

To combat slowing sales and affordability concerns, Toyota and other automakers announced they would refocus on cheaper vehicle models — a change from recent years, when automakers prioritized their most expensive, most profitable vehicles during supply chain shortages.

“Every automaker must face the reality that the U.S. market has changed in the near future,” said Lance Woelfer, U.S. market director. Honda engine Sales in the United States.

For Honda, Woelfer said that means increasing production of less expensive versions as well as focusing on certified pre-owned vehicles, which are used but backed by the company’s warranties. For others, like Ford, that could include re-entering abandoned segments such as sedans, according to its CEO.

“Never say never,” Farley told reporters at the event in Detroit. “The sedan market is very dynamic. It’s not that there isn’t a market there. It’s just that we haven’t found a way to be competitive and profitable. Well, we might find a way to do that.”

Ford sells sedans outside the United States, but exited the domestic market with the cancellation of the Michigan-made Fusion in 2020. It also eliminated the larger Taurus sedan and the smaller Ford Fiesta and Ford Focus before that.

Ford’s Crosstown Rivals General engines And Stellantis have also largely left the traditional American sedan market.

Affordability issues are also drawing attention from outside the auto industry. A Senate committee led by Sen. Ted Cruz of Texas has requested a hearing with the CEOs of Ford, GM and Stellantis on affordability and other auto industry issues. The hearing was scheduled for January 14 but was postponed due to scheduling conflicts and Ford’s general reluctance about Tesla CEO Elon Musk did not attend the meeting, according to a company letter to the subcommittee obtained by Politico.

Automakers are also bracing this year for potentially volatile U.S. trade regulations and negotiations, such as the upcoming renegotiation of the U.S.-Mexico-Canada Agreement, expected later this year.

Currently, automakers can import new vehicles from South Korea or Japan with lower tariffs than Canada or Mexico, depending on their U.S. content. The Trump administration has reached vehicle trade deals with these Asian countries, but not with its neighbors to the north and south.

Depending on the outcome of these discussions, the USMCA could be an asset for automakers that produce a large part of their production in the United States.

“Looking ahead to 2026, our work on the cycle suggests that the auto sector would struggle to outperform given a relatively flat year-over-year volume outlook. However, we see reasons to be optimistic for the US. [automakers]” UBS analyst Joseph Spak wrote in a note to investors last month.

Wall Street will begin receiving its first outlooks from automakers this week, starting with GM’s announcement Tuesday of its fourth-quarter and year-end results, followed by Tesla Wednesday.

GM CEO Mary Barra reconfirmed earlier this month that the automaker expects 2026 to be better than 2025.

GM’s 2025 guidance called for adjusted earnings before interest and taxes of $12 billion to $13 billion, or adjusted EPS of $9.75 to $10.50, and auto adjusted free cash flow of $10 billion to $11 billion, up from $7.5 billion to $10 billion.

But according to automakers, Wall Street analysts expect mixed results for the U.S. industry, which continues to face a period of uncertainty.

“It is difficult to imagine how 2026 could bring more external shocks and share price divergences than 2025 but, with no visible end to industry disruption, we are also bracing for surprises, writedowns and strategic changes,” Owen Paterson, an analyst at Jefferies, said in a note to investors this month.