Feb 10, 2026
A growing body of data indicates that Americans are putting the brakes on buying cars — whether new or used — after a flat 2025 for auto sales.
Cox Automotive, which owns Kelley Blue Book, predicts sales of new cars will drop 2.4% in 2026 and used car sales will fall 0.9% (1) year-over-disappointing-year.
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Joseph Yoon, consumer insights analyst at the automotive research site Edmunds, shared his concerns with the Washington Post (2).
“We thought 2025 would be the first full year back after pandemic [supply issues], and instead we got hit with tariffs and affordability issues and very high interest rates,” he said.
The fundamental challenge is affordability, with the cost of cars rising faster than most other goods in the Consumer Price Index.
By September, the price tag on a new car hit a record $50,000 (3). While that may not deter a high-income buyer, it is putting off average households.
In fact, the auto industry is witnessing the effects of the so-called K-shaped economy, in which wealthier consumers thrive (and drive) while lower- to middle-income earners cut back on all sorts of purchases — especially big ones like cars (4).
Here’s a closer look at factors behind the high price of cars, and if there’s any help on the way for average Americans who want to buy a car.
Jacked-up prices on every lot
Tariffs are one factor. The Trump administration’s tariffs are driving up the cost of foreign-built cars and automotive parts — contributing to higher car prices even if automakers try to swallow the costs directly rather than passing them on.
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Relatively high interest rates are also affecting car sales, as most consumers finance vehicles.
As of August, according to Federal Reserve Bank data, the average 5-year auto loan was 7.64% compared to 5.15% in 2020.
That’s causing some car buyers to take out longer loans (six years instead of five years, for example) to reduce monthly payments.
But monthly payments are already steep. Automakers aren’t being as generous with incentives as they were before the pandemic, with incentives hovering at 6.7% now compared to 8% pre pandemic.
It’s even tough for buyers to find a used-car deal. As the Washington Post reports, the pandemic supply-chain issues resulted in lower car production which means a tighter supply of almost-new cars now — leading to higher prices.
Cox Automotive’s Vehicle Affordability Index, which measures the number of weeks of income an average family would need to purchase a vehicle, sat at 36.3 as of November 2025.
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While this is lower than the pandemic high of 42.2 weeks, in December 2022, it’s still well above pre-pandemic levels (5).
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Buying a car without breaking the bank
Would-be car buyers would be wise to shop strategically this year. You may want to watch to see whether the Federal Reserve lowers interest rates this year as economic forecaster Oxford Economics predicts (6).
A new tax deduction for interest paid on a loan used to purchase a new vehicle could also benefit those looking to buy in 2026.
The loan must be for a personal-use vehicle, it must be purchased between 2025 and 2028, and final assembly of the vehicle must be in the U.S. Lease payments don’t qualify; the loan must be secured by a lien on the vehicle. There are also income limits for the deduction.
Check the IRS website for details.
Finally, consider purchasing a used car. While they’re not cheap, they’re still less expensive options in this environment.
Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Cox Automotive (1, 5); Washington Post (2); Kelly Blue Book (3); CNBC (4); Oxford Economics (6)
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Rebecca Payne has more than a decade of experience editing and producing both local and national daily newspapers. She's worked on the Toronto Star, the Globe and Mail, Metro, Canada's National Observer, the Virginian-Pilot and Daily Press.
