Here's where things stand with the 2026 U.S. auto market: tax refund-driven consumer spending, energized by President Trump's One Big Beautiful Bill Act, helped produce solid first-quarter sales for automakers, according to Cox Automotive's Industry Insights and Forecast.
Cox Auto anticipates first-quarter momentum continuing into the rest of the year, and the firm has held its full-year projection steady since January: 15.8 million new cars and trucks sold in 2026. That would represent a 2.6 percent decline from the 16.2 million vehicles sold in 2025.
The big variable is whether the U.S.-Israel conflict drags on and whether Iran's oil tanker blockade of the Strait of Hormuz inflicts lasting damage on the global economy. Neither development bodes well for vehicle demand.
Cox Auto chief economist Jeremy Robb drew on Robert Frost's The Road Not Taken in his presentation, quoting its famous opening: "Two roads diverged in a yellow wood."
"That's a fitting mental image as uncertainty abounds in the current market," Robb said. "In the Frost poem we don't know where each road leads or the ultimate destination. In today's environment, we don't know the end path for all options. Yet it's clear they're quickly going to collide on multiple fronts."
Cox Auto observed rising consumer spending and stronger demand in its Manheim used-car auction lanes since early 2025, and retail sales of new and used vehicles were tracking well from February through mid-March — until the Iran conflict began.
"With each passing day, consumers get a new headline to watch on the evening news," Robb said. "And with no end in sight, their willingness to spend those refund dollars declines."
The conflict may be drawing more headlines than tariffs, but the trade policies are doing their own damage. Cox Auto estimates tariffs cost automakers and suppliers $35 billion in 2025, with the industry absorbing $3,800 per vehicle that would otherwise have been passed on to buyers, according to Executive Analyst Erin Keating.
This year's tariff landscape remains complicated, she noted, with a 25 percent levy on imported parts and a 50 percent duty on imported steel and aluminum pushing vehicle prices higher. Automakers are counting on renegotiation of the U.S.-Mexico-Canada trade agreement, left over from the first Trump administration, and are hoping for a new trilateral deal.
For all the uncertainty, a market of 15 to 16 million units is still substantial. Consumers willing to navigate the current environment may find some deals in 2026.
The sales segments performing best in Q1 align with the "K-shaped economy" economists have been describing — one in which higher-income households continue spending while middle- and lower-income consumers pull back. Mid-size SUVs averaging $52,100 are up more than 15 percent so far this year, mid-size trucks at $45,200 are up roughly 14 percent, luxury compact SUVs averaging $53,900 are up 5 percent, and mid-size cars at $35,200 are up slightly.
Cox Auto, projecting first-quarter results forward to March 31 from its March 25 report date, estimates overall Q1 sales to be down 6.5 percent versus the first quarter of 2025.
The Detroit Three have largely exited the value-priced mid-size car segment, which is showing in their numbers. General Motors is expected to be down 9.6 percent for Q1 year-over-year, while Ford is down 9.3 percent. Stellantis, which struggled badly in 2025, is down just 1.9 percent year-over-year for the quarter, though compared with Q4 2025 the drop is steeper at 13.2 percent.
GM's Cadillac and Buick saw particularly weak first-quarter sales, according to senior economist Charlie Chesbrough.
Toyota Motor North America — which includes Lexus — is expected to be down just 0.1 percent year-over-year, buoyed by strong Tacoma and 4Runner demand. Hyundai Group — which Cox Auto combines with Kia and Genesis — is down 0.3 percent, helped along by solid Kia SUV and Caravan sales. Nissan is down 7.4 percent compared with Q1 2025, though it's up 17.4 percent versus Q4 2025.
Volkswagen Group — including Audi and Porsche — is down a significant 19.8 percent year-over-year. Subaru is also hurting, down 16.7 percent for the quarter with the new Forester the only volume model showing growth. Mazda is down 9.8 percent.
"Manufacturers with bigger portfolios and price points are stronger," Chesbrough noted.
Within the electrified vehicle space, conventional hybrids are the fastest-growing segment, outpacing plug-in hybrids and battery-electric vehicles, according to Cox Auto's Director of Industry Insights, Stephanie Valdez Streaty. Electrified vehicles overall hit 25.7 percent of new-vehicle sales by Q4 2025, per Kelley Blue Book.
New EV sales in Q1 are projected at 212,600 units, representing about 4.5 percent market share and a 26 percent drop year-over-year. EV market share had peaked at nearly 12 percent in Q3 2025.
Tesla is expected to sell 122,196 vehicles in Q1, down 4.6 percent year-over-year. The brand's average incentive spending is 11.1 percent — slightly ahead of Volvo at 11 percent. Honda leads EV incentive spending at 27.1 percent, followed by Kia at 27 percent, while Porsche comes in lowest at 2.8 percent.
The price premium EVs command over other powertrains has fallen to a record-low $6500, and used EVs are now priced within $1300 of comparable gas models. A wave of three-year-old off-lease EVs is pushing into the used market, and the current EV lease rate of nearly 30 percent has returned to pre-pandemic levels.
About 70 percent of consumers returning a three-year-old leased EV are signing up for another electric vehicle, Valdez Streaty noted, reflecting growing comfort with the technology and continued incentive support.