Perc Pineda, PhD
Chief Economist, Plastics Industry Association
Last November, I noted that the U.S. economy, while finding its footing amid and following the federal government shutdown, continued to provide a stable foundation for automotive demand. As federal data resumed, I expected the incoming data to validate those industry insights and reinforce the sector’s underlying strength.
That assessment appears to be holding up.
Against a backdrop of higher tariffs that began last year and the geopolitical conflict involving Iran that began in late February, the automobile industry remains one of the pillars of U.S. economic growth—a role it has played since the 1950s. Despite these headwinds, recent data suggest that the industry has remained resilient.
Over time, U.S. automobile and light-truck manufacturing has become increasingly integrated with a diverse global supply chain for parts and components while facing intense competition from imports. This combination has made the industry more vulnerable to external shocks and policies that increase production costs. Slower productivity growth can further constrain wage growth and, ultimately, demand for automobiles and light trucks.
Demand Remains Solid
Auto and light-truck sales were estimated at a seasonally adjusted annual rate (SAAR) of 16.6 million units in June before edging down to 16.3 million units in July. More importantly, sales have remained above 16.0 million units for the past four months.
This stability is notable given uncertainty surrounding tariffs, vehicle prices, interest rates, and energy costs. The geopolitical conflict involving Iran also presents a potential demand-side risk through higher gasoline prices. Rising fuel costs increase the expense of vehicle ownership and put additional pressure on household budgets, particularly for consumers purchasing or operating less fuel-efficient vehicles. So far, however, higher gasoline prices have not resulted in a significant deterioration in vehicle sales.
New-vehicle prices have also increased moderately. The Consumer Price Index (CPI) for new vehicles rose 0.5% year over year in June, virtually unchanged from March and matching its average increase over the past 12 months. This suggests that tariffs have not yet translated into price increases large enough to diminish widespread demand.
All in all, automakers have absorbed some of the higher tariff-related costs while passing a portion on to consumers through higher vehicle prices, reduced incentives, and other fees.
Tariff Pressures Appear Contained
Producer prices provide additional perspective on the effect of tariffs. The Producer Price Index (PPI) for motor vehicle manufacturing increased 1.6% year-over-year in June, matching its average increase over the past 12 months and below the 1.9% increase recorded in June 2025.
The impact appears somewhat greater among parts manufacturers. The PPI for motor vehicle parts manufacturing rose 2.1% year-over-year in June, compared with a 2.0% average increase over the past 12 months and a 1.4% increase in June 2025. Because the automotive supply chain is highly integrated, sustained cost increases among parts suppliers could eventually put additional pressure on automakers and consumers.
For now, however, the data suggest that tariff-related cost increases have been absorbed without a significant disruption to production or demand.
Production and Orders Remain Firm
Manufacturers’ new orders for motor vehicles and parts rose to $73.1 billion in June from $72.1 billion in March and were up 10.6% from a year earlier. Motor vehicle assemblies reached a SAAR of 10.7 million units in June and increased to 11.0 million units in July—the highest level since July 2023.
North American production also edged higher. According to data from the Automotive News Research and Data Center, automobile and light-truck production in the United States, Mexico, and Canada increased 0.7% year to date through June compared with the same period last year. Production rose 2.6% year-over-year in June, with automobile production increasing 4.6% and light-truck production 2.2%.
These indicators point to an industry that continues to produce at a relatively healthy pace despite higher tariffs, geopolitical uncertainty, and energy-price pressures.
Lower Rates Could Provide Additional Support
Interest rates remain an important factor for vehicle affordability because many purchases are financed. Recent Federal Reserve rate cuts have eased borrowing costs, and additional reductions in 2026 could provide further support for automotive demand.
Lower financing costs will not necessarily offset all affordability pressures from higher vehicle and gasoline prices, but they could help keep monthly payments manageable and support purchases that might otherwise be delayed.
For now, the data point to resilience rather than deterioration. Sales remain above 16 million units, new-vehicle price increases are moderate, motor vehicle orders are growing, assemblies have returned to levels last seen in 2023, and North American production is edging higher.
The longer-term challenge is whether the industry can maintain competitiveness while managing tariffs, global supply-chain exposure, energy costs, and productivity. For the remainder of 2026, lower financing costs and continued consumer demand could provide support. But sustaining that momentum will depend on how effectively automakers and suppliers manage these competing pressures.
For an industry that remains a key end market for plastics, the current picture is encouraging. Automotive demand has held up despite a challenging policy and geopolitical environment, but affordability and production costs remain important risks to watch.
