2025 has been a challenging year for the automotive industry, shaped by significant policy shifts under the new administration and heightened geopolitical tensions. On the latest episode of Inside Automotive, Kevin Tynan, director of research at The Presidio Group, outlines what dealers and manufacturers should anticipate as the industry heads into 2026.
The industry will likely close out 2025 at roughly a 16 million SAAR, a level that supports stable and sustainable profitability. Looking ahead, however, 2026 will be measured against a strong year that benefited from temporary demand catalysts. Tariff-related concerns early in the year and the expiration of federal EV tax incentives later in the year pulled demand forward, inflating sales during certain periods of 2025.
The pull-ahead effect became evident in October, when the seasonally adjusted SAAR fell to 15.3 million. This snapback reveals that volume alone does not guarantee profitability. Once the industry pushes beyond a 16 million pace, pricing discipline and margins begin to erode. The healthiest range for sustainable profitability lies between 15.5 and 16 million units, supported by inventory levels of around 3 million units.
"More volume isn't always better... If the industry pushes much above the 16 million unit rate, we're going to see pricing and margins break down."
However, inventory is already creeping above that threshold. Dealer lots nationwide are carrying an estimated 3.3 million units, a level Tynan describes as potentially dangerous. Three million units represent roughly a 60-day supply, and exceeding that balance quickly disrupts pricing integrity and margin dynamics. While manufacturers have largely maintained inventory discipline throughout 2025, whether that restraint holds in 2026 remains to be seen.
Affordability is another pressure point expected to intensify next year. Automakers absorbed much of the tariff impact in 2025, shielding consumers from higher prices. However, that approach is not sustainable. As increased costs begin to flow through to retail pricing, estimates suggest a roughly $2,500 increase per vehicle.
Higher prices will likely dampen demand, while excess inventory could force price cuts that undermine profitability. Tynan argues that muted demand driven by higher prices, while painful, may ultimately be the healthier outcome for the industry.
Electric vehicles could also see pricing adjustments in 2026. Manufacturers may move EV platforms downmarket by leveraging newer technology to attract younger buyers. However, doing so would likely come at the expense of profitability. Manufacturers will need to carefully weigh how many unprofitable units they are willing to sell, how far those vehicles sit from breakeven and how much they are prepared to cannibalize higher-margin products.
Rising costs further complicate the equation. As breakeven points continue to climb, Tynan said it is increasingly unrealistic to expect vehicles priced between $25,000 and $30,000 to return in meaningful volume. That reality extends to the used market as well, where average transaction prices are approaching $30,000, limiting affordability gains for consumers seeking alternatives to new vehicles.
For dealers, Tynan believes success in 2026 will hinge on reducing reliance on new-vehicle sales. He advises dealers to lean into revenue diversification by strengthening used-vehicle operations, expanding fixed ops and service and improving productivity through greater efficiency. Investments in technology and AI-powered tools will play a growing role in controlling operating expenses and sustaining profitability in a more challenging environment.
While 2026 may lack the demand seen in recent years, there are fewer visible shocks on the horizon, and the year could offer the industry something it has not had in some time: relative stability. That stability, Tynan notes, may allow dealers to focus on fundamentals and adapt strategically as the market settles into a more normalized operating environment.
