Driving Change: Automotive Trends That Defined 2025 and Shape 2026

Hi readers, 2025 has been a crazy ride for the auto industry. Between tariffs, shifting regulations, and financing shakeups, it’s been a year of both resilience and disruption. Still the fundamentals are strong. U.S. auto sales rose in seven of the eight months, and major domestic automakers are posting solid revenue. A big thanks to Joe Scurek, the U.S. risk underwriter for automotive, for providing this industry update.

Let’s break down what’s driving the industry and what to watch for in 2026.

Major headwinds & risk events

This year, automakers and suppliers have faced pressure from all sides. Tariffs, tax changes and credit market instability are testing the resilience of Original Equipment Manufacturers (OEM).

The biggest hit? A shiny new 25% tariff on imported cars and parts. Even with USMCA exemptions, margins are tight. This has forced OEMs to choose between absorbing the tariff-related costs and sacrifice profitability or pass them on to consumers through higher sticker prices. Neither option is ideal for manufacturers or buyers.

Electric vehicles also hit a speed bump. The federal $7,500 EV tax credit expired in September, significantly reducing purchase incentives. While Q3 2025 saw a rush of buyers racing to beat the deadline, its demand is expected to cool now that credit has expired.

Meanwhile, the auto finance world has had notable disruptions, including several subprime auto lenders bankruptcies such as Tricolor Holdings and Prima Lend Capital Partners. First Brands, one of the major aftermarket supplier bankruptcies shook the private credit market, exposing deeper risks in how debt and working capital are structured.

Positive Catalysts & Mitigating Factors

Despite these challenges, there are positive shifts.

Global OEMs are investing heavily in U.S. production. These moves are clear efforts to step side tariffs though results will take time.

Another positive came from the White House. The Auto Tariff Offset Program was extended, helping domestic OEMs by offsetting part of a vehicles MSRP. That relief has led several automakers to raise their profit forecast for the year.

In September, the Fed cut interest rates by a quarter point, followed by another cut in late October, and there could be yet another before the end of the year. For an industry that depend on consumer financing, lower rates could help offset high transaction prices and bring buyer back to dealerships.

AI and sustainability

AI and sustainability are the industry’s new power duo. Automakers are using AI to streamline production, cut waste, and improve energy efficiency. It’s also helping predict maintenance needs and optimize supply chains, which lowers emissions. At the same time, sustainability is front and center. Companies are pushing electric and hybrid models, investing in cleaner tech, and tracking environmental impact more closely. Together, these trends point to a future where cars are smarter, greener, and built with efficiency in mind.

Looking Ahead

As we speed toward to 2026, three themes will dominate: supply chain shifts, EV affordability, and consumer demand. Manufacturers will continue reshoring and diversifying suppliers, but tariffs will keep pressure on pricing and margins, making recovery slow. Electric vehicle affordability will also take the spotlight, with new lower-cost models expected to reignite demand after the expiration of federal tax credits.

And consumer demand? It’s all about affordability. With average car prices hovering near $50,000, incentives, financing options, and a healthy used market will be critical for survival. Bottom line: 2026 is the year strategies meet reality.

So, buckle up…its going to be an interesting ride.

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