How A ‘Disciplined’ Auto Industry Squeezed Consumers

The American auto market has undergone a fundamental structural shift over the past decade, moving away from high-volume sales toward a strategy of selling fewer vehicles at higher price points. New car sales, which peaked at 17.5 million units around 2016, are forecast to reach only about 16 million in 2026—nearly 10% below that peak. Analysts estimate the industry has cumulatively lost 16 million sales since the 2016 peak, and the market has never fully recovered its former volume.

The COVID-19 pandemic acted as a catalyst for this shift. Supply chain disruptions and production shutdowns forced automakers to drastically cut output, and they responded by prioritizing their most profitable, higher-trim vehicles. This generated record profits for both automakers and dealers, leading many in the industry to conclude they preferred this leaner, more profitable model over the high-volume, heavily discounted approach of the past.

Two key pre-pandemic sales practices—leasing and incentives—were significantly curtailed during this period and have not fully recovered. Leasing, which once accounted for 33% of new car sales, fell to 18% in 2022 and has only partially rebounded to 24%. Since leased vehicles are a primary source of used car inventory, this reduction has severely constrained the used car supply pipeline, which is projected to remain below pre-pandemic levels through 2030. Meanwhile, new car incentives (discounts) dropped from around 9% of purchase price before the pandemic to near zero during it, and now sit at about 7%—still below historical norms. Lower incentives on new cars mean used car prices stay elevated, as buyers won't choose a used car unless it's priced meaningfully below a new one.

The composition of off-lease vehicles is also shifting. EVs, which were about 5% of lease returns, are expected to represent nearly a quarter by 2028, while hybrids are being leased at below-market rates, meaning they will be scarce in the used market. The cumulative effect of all these dynamics—fewer cars produced, fewer leases, lower incentives, and an aging car park—has pushed even 9-to-10-year-old used vehicles to abnormally high wholesale prices, signaling that buyers are being forced further down market.

The average household income of a new car buyer is now $150,000, nearly double the U.S. average. Monthly payments on comparable vehicles have risen by $150–$200, and prices overall are up about a third while wages have not kept pace. Automakers like Toyota are running near full capacity, and while every manufacturer is tempted to produce incrementally more for the extra profit, industry analysts suggest most remain 'disciplined' about not overproducing. Tariffs on imports from South Korea and Mexico—where cheaper vehicles are manufactured—are further limiting supply of affordable options, and the industry is also working to block Chinese competition from entering the market.