Escalating Duties Conflict Anticipated in 2026 Automotive Sector
In the automotive world, the landscape is shifting, with several factors coming into play that could impact the industry in the near future.
Charlie Chesbrough, senior economist for Cox Automotive, has been making some bold predictions recently. He expects auto sales to decline next year, comparing tariffs to the 'iceberg that sank the Titanic' in a previous webinar. However, contrary to initial expectations, tariffs have not had a massive impact on the vehicle market as of now.
OEMs (Original Equipment Manufacturers) are taking measures to reduce their tariff liability. Some are shifting production to U.S. plants, while others are discontinuing U.S. sales of some high-tariff models. Despite this, automakers are more willing to absorb the extra costs from tariffs than anticipated, according to Chesbrough.
The average new-vehicle transaction price in August 2025 was $49,077, an increase of 2.6% compared to August 2024. As prices continue to rise, consumers are trying to beat expected increases by making purchases earlier than planned.
The federal tax break on EVs is set to expire on September 30, 2025. This expiration is expected to have a significant impact on sales of battery-electric vehicles and plug-in hybrid vehicles. Cox Automotive expects manufacturers to run out of alternatives to price hikes in 2026, and sales of these vehicles are predicted to suffer after the tax break expires.
Cox Automotive has upped its 'baseline' most-likely-scenario, light-vehicle sales forecast to 16 million units. However, the company expects a brick wall in EV and PHEV sales once the incentives fall. Chesbrough compares the effect on EV sales after the tax break expires to 'Armageddon' or the end of the world.
Monthly new-vehicle sales have been strong this summer. However, some smaller body styles, such as compact and subcompact SUVs, compact cars, and midsize pickups, are gaining new-vehicle share potentially due to customers downsizing to avoid higher prices.
Looking ahead, there are concerns about the impact of tariffs in 2026. Cox Automotive expects tariffs to have a bigger effect in this year, with vehicle prices in Germany expected to increase due to several factors, including the introduction of EU anti-China import tariffs and rising emissions reduction costs. Exact percentage increases for passenger vehicles are not specified in the available sources.
Assuming the Federal Reserve cuts interest rates at its Sept. 16-17 meeting, it could help sustain auto sales. However, the industry still faces a challenging road ahead, with price increases and the expiration of the EV tax credit looming on the horizon.
