New cars kept selling in 2025, just not to everyday buyers

Higher-income households drove a surprisingly strong 2025 new-vehicle market: households earning >$150,000 now account for 43% of new-car purchases (up from 30% in 2019) while households earning < $75,000 fell to 26% (from 37%), helping push the average new-vehicle sale price above $50,000 in September. Industry estimates project 16.3 million new-vehicle sales in 2025 (best since 2019), but Cox Automotive anticipates a 2.4% decline to ~15.8 million in 2026 as pull-forward demand from tariffs and a time-limited EV tax credit fades and affordability issues exclude lower-income buyers.

Analysis

Market structure: The upscale bifurcation is real — households >$150k now account for 43% of new-car purchases vs 30% in 2019 and industry ASPs topped $50k in Sep 2025. Winners are luxury and truck/SUV OEMs, premium suppliers and franchised dealers (higher margins per unit); losers are entry-level OEMs, rental/fleet channels and subprime-dependent lenders as sub-$40k inventory becomes illiquid.

Risk assessment: Near-term (0–3 months) risks include snap tariff or tax-credit reversals that can re-price demand; medium-term (3–12 months) risk is rising auto-loan delinquencies (lags 6–9 months) that pressure ABS and regional banks. Tail risks: a recession hitting high-income consumption, or a policy reversal reinstating broad EV incentives, could rapidly rotate flows; hidden dependency is used-car residuals — a 5–10% drop would amplify lease/financing losses.

Trade implications: Prefer dealers and premium-supplier exposure; expect margin expansion if ASPs hold and inventories for <$40k remain stagnant. Cross-asset: upward ASPs are mildly inflationary (supporting near-term breakevens) and increase risk in auto ABS; higher-income resilience mutes immediate duration shock but raises credit dispersion among banks.

Contrarian angles: Consensus assumes permanent luxury conversion; history (2009–12 used-car bounceback) shows rapid second-order reversals via incentives or residuals. Mispricing: ABS and bank names likely underprice stressed subprime pools; unintended consequence — OEMs doubling down on luxury could cede scalable volume to low-cost EV entrants, creating a multiyear share-shift opportunity.

Key Decisions for Investors

• Establish a 2–3% long position split 60/40 in AutoNation (AN) and CarMax (KMX) for a 3–12 month horizon to capture higher ASPs and used-car margin resilience; take profits if same-store used gross margin falls >5% QoQ or consolidated ASP declines >3% QoQ.
• Establish a 2% long position (1% each) in Ford (F) and Stellantis (STLA) to play persistent truck/SUV demand; trim to 0% if US light-vehicle sales for 2026 print <15.5m or if OEM guidance cuts EBIT by >10% for the next two quarters.
• Buy downside protection sized 1–2% notional on auto-finance exposure: use a 6-month put spread on Ally Financial (ALLY) (buy 15% OTM puts, fund with 30% OTM puts) to hedge rising subprime delinquencies that typically surface 6–9 months after consumer stress.
• Execute a 1–1.5% pair trade: long Aptiv (APTV) vs short Toyota Motor (TM) to capture premium-component ASP upside vs volume-exposed OEMs; hold 3–9 months and unwind if APTV underperforms Toyota by >7% over 90 days.
• Deploy 0.5–1% in options as a directional/vol play: buy a 3–6 month call spread on Tesla (TSLA) (10%/30% OTM) to capture residual EV momentum, and buy a 6-month 15% OTM put on a low-priced OEM proxy (e.g., HYMTF) sized 0.5% as tail-hedge against a collapse in sub-$40k demand.