Recent economic headlines have offered plenty of reasons for caution. Tariffs are back in the conversation. Interest rates and gas prices remain elevated, with no relief in sight. The national debt crossed the $40 trillion threshold and continues to attract attention. Consumers are stuck in the middle of this, feeling the pressure from all the uncertainty and from higher costs across many parts of their lives.
Last week, I joined CBT News to discuss these issues and the risks facing automakers, dealers and consumers. One takeaway stood out:
The automotive market remains more stable than many of the broader economic headlines suggest.
The industry is incredibly resilient and has adapted through the pandemic, supply chain disruptions, inventory shortages, inflation, and affordability challenges. Today’s environment presents a different mix of risks, but dealers, automakers and consumers continue to adjust.
The headlines don’t tell the whole story
Uncertainty is real, especially around tariffs and their potential effects on vehicle pricing and production planning. Automakers make product development and manufacturing decisions over long time horizons, so shifting policies make planning more difficult. But in the retail market, it is important to separate the broader economic headlines from what is happening on dealership lots.
Vehicle sales have held up better than many expected. New-vehicle sales have remained relatively steady through much of the year, while demand for older, more affordable used vehicles has strengthened. Many consumers have delayed replacing their vehicles, but aging vehicles eventually bring those buyers back into the market.
That helps explain why demand has remained resilient despite persistent affordability pressure and negative vibes about the economy.
Affordability extends beyond vehicle prices
“Consumers are looking for something affordable. If they can get their hands on a $15,000 or $18,000 car, there’s more competition in that marketplace.”
Affordability discussions often begin with vehicle prices. The average transaction price for a new vehicle remains near $50,000, while the average price for a used vehicle is around $30,000. But the purchase price is only one part of the ownership equation.
As important as the purchase price are the other costs that are part of the automotive equation. Insurance premiums have risen significantly. Repair and maintenance expenses have increased. Fuel costs remain a concern for many households. Together, these factors make affordability about much more than the monthly vehicle payment.
Consumers are responding in different ways. Some higher-income households continue to benefit from strong asset values and stable employment. Others are looking more aggressively for lower-cost vehicles, which is helping drive interest in older used vehicles. One of the more notable trends we have observed this year is growing demand for vehicles that are 8, 9 or even 10 years old.
Those vehicles often offer lower purchase prices and, in some cases, simpler technology can make repairs easier. For many buyers, that equation still works.
A bright spot: credit availability
One encouraging development is that lenders have become more willing to extend credit to qualified borrowers. Interest rates remain important, but access to credit is often just as critical in supporting vehicle sales.
The Cox Automotive Credit Availability Index has shown improving lending conditions in recent months. Greater willingness to lend can help offset some of the pressure created by higher benchmark interest rates. It’s not a cure-all, but it is an important signal that financing channels remain open and competitive.
Why dealers should stay focused on fundamentals
During the CBT News discussion, I was asked what dealers should watch most closely. My answer was not GDP, inflation or government debt. To me, dealers should focus on traffic and sales trends.
“Pay attention to traffic, pay attention to sales trends. For me, I watch the wholesale market and I watch the retail market every week.”
Macroeconomic indicators matter, but dealerships operate at the local level. Shopper traffic, inventory movement and sales trends can provide more actionable information than any single national headline. Dealers know their customers, inventory and communities best.
We are relentless on traffic numbers as well. We track wholesale and retail markets every week. Those numbers provide some of the most important signals, offering a current view of demand, supply and pricing.
Reasons for cautious optimism
Cautious optimism does not mean overlooking some real risks in the market today. We don’t want to gloss over the possibility of higher interest rates, which could lead to higher annual percentage rates on auto loans, global uncertainty and ongoing policy changes. All of that deserves attention. There are also legitimate concerns surrounding government debt and financial market volatility. Those factors could influence economic growth and consumer behavior in the months ahead.
“There is reason to feel cautiously optimistic going into the end of this year and next year. You can’t write off everything, even with a lot of the things that have been kind of negative.”
Still, the economy continues to grow and employment remains strong. That is good news for auto retailers, and one of the key reasons vehicle demand has held steady despite affordability pressure. That is good news for auto retailers, and one of the key reasons vehicle demand remains steady despite affordability pressure. The past several years have shown that the automotive market – and dealers – can adjust even when conditions change quickly.
The challenges are real, but so is the industry’s ability to navigate them.
As we head into the final months of the year, that is the balance I keep coming back to. I tell dealers all the time: Stay informed, watch the data, focus on the fundamentals. It is important not to get distracted by the negative economic news that dominates the headlines. The most important signals for dealers will continue to come from traffic, inventory, and sales trends in their local markets.
