Americans flinch when car prices increase

For years, it seemed like no sticker price was too high for American car buyers. Even as the average price of a new car approaches the $50,000 mark this year, dealers are still more worried about lack of stock than about price shock from customers.

But the situation has changed when the average price of a new car exceeded the $50,000 mark for the first time since September and is expected to continue to increase. Americans, increasingly financially stressed, are starting to put limits on how much they are willing to spend on new cars.

According to dealers, analysts and industry data, car buyers are switching to smaller models, looking for used cars, taking out longer car loans and waiting for better incentives.

“People are starting to wonder, ‘How can they afford it?'” said Robert Peltier, owner of a car dealership system in east Texas. He said ridership is fine but has slowed, and many people are leaning toward cheaper models, like the compact Chevrolet Trax.

The US auto industry once expected 2025 to be a booming year, thanks to tax cut policies and a wave of regulatory loosening by President Donald Trump’s administration. Analysts predict vehicle sales will grow for the third year in a row, as automakers, hit hard by the Covid-19 pandemic and semiconductor shortages, are finally able to operate factories at full capacity.

Manufacturers have reason to be optimistic. Car prices skyrocketed because of scarce supply after the pandemic. Consumers are still willing to pay high prices when output recovers. Car buyers continued to accept the new price level in the first months of the year, despite cutting spending on other items, from dishwashers to beer.

But so far, forecasts show that growth will slow down, or not grow at all this year, and may even extend into 2026.

Auto import tariffs, persistent inflation and a tightening job market are causing more Americans to reconsider big purchases. At the same time, the US electric vehicle market plummeted, partly due to the government’s $7,500 tax credit program ending at the end of September, causing the industry to lose hundreds of thousands of potential vehicle sales.

Demand for electric vehicles soared before the tax credit program expired, helping auto sales maintain their upward momentum in the first three quarters of the year. But October sales were the slowest in more than a year. November results announced this week are also forecast to decline, and there are no signs of a quick recovery.

Signs of stress are starting to appear in the reported data. The car stays at the dealership longer. Dealers must launch more discount programs to boost sales. Low-income people are defaulting on their car loans. Overall, Americans are spending less on cars than last year.

“Other factors in the economy are stretching consumers’ tolerance,” said Ivan Drury, an analyst at auto shopping website Edmunds.

Observers say that although buyers are under a lot of pressure, this is unlikely to cause car prices or sales to plummet. The reason is that the scarce supply of new cars for many years has pushed up used car prices, making it difficult for prices to fall deeply. Many car owners have also delayed changing their car for too long, so they are forced to buy a new car, preventing demand from plummeting.

Spare parts and maintenance costs have also increased, so keeping old cars is also expensive. “There’s almost no way to lighten the burden,” Mr. Drury said.

The reality is clearly shown in showrooms nationwide. The industry’s largest retailers reported declines in profit margins and new-vehicle profits in the latest quarter.

“At some point you have to make concessions, and usually the dealer has to increase the discount to push the car,” said Erin Keating, senior analyst at Cox Automotive. She predicts that auto sales in the US will continue to grow, but at a slower rate.

Not all buyers face difficulties. A segment of consumers still contributes to high auto industry profits, spending heavily on new pickup trucks and SUVs with heated steering wheels, massage seats and advanced driver assistance systems. However, the number of Americans in the rising branch of the K-shaped economy is not many.

“There will be a few more alarm bells going off, signaling that the industry is really depending on the top 20% of households to keep the market afloat,” Ms. Keating said.

Petrit Xhudo, 35, from Idaho, needed a new car after his old Acura was damaged in an accident. He and his wife have a new Tesla, but they wanted a second one that was reliable and spacious enough for long-distance travel. Even though his wife is a doctor and the family is financially stable, he was still shocked when he saw the price of a Hyundai model.

During a week, the couple checked prices at dozens of showrooms in many states to get the best price. As time passed, the agents who had previously shaken their heads contacted again.

“They all called, asking: ‘What do we have to do for you to choose us?'” Xhudo said. In the end, the couple chose a more advanced Hyundai Tucson hybrid, after the dealer agreed to reduce about $5,000 from the original asking price.