How consumers feel about the economy and their own economic prospects sit close to the heart of the decision to purchase a new vehicle. But in a worrisome sign for the future of vehicle sales consumers sentiment is slipping and price increases loom. Headlight.News has more.
Consumers are facing increased price pressure and its unclear the Fed rate cut will offer any relief.
Consumer sentiment, a critical indicator for sales of new cars and trucks has taken a turn for the worse, threatening a potential downturn in deliveries that could shake the industry.
Broadly speaking, consumer sentiment measures whether buyers are feeling optimistic enough about the economy generally, and their economic prospects personally, to reach into savings or take on the debt required to purchase a new vehicle.
For many American consumers, the threat of economic turmoil, job uncertainty, rising prices and added debt appears to be putting car purchases on hold – even after the Federal Reserve’s modest cut in interest rates earlier in September.
University of Michigan index drops
The closely watched University of Michigan study shows consumers growing increasingly nervous.
Joanne Hsu, director of the University of Michigan’s bellwether Surveys of Consumers, said the latest poll results show a 20% decline from December 2024, when sentiment had exhibited a post-election bump.
Current conditions dropped nearly 10%, led by a sharp decrease in buying conditions for durable goods. The expectations index weakened a touch. While expectations for business conditions weakened for both the short and long run, the outlook for future personal finances held steady this month.
“Although consumers no longer fear the catastrophic scenarios they anticipated in the wake of the April tariff announcements, they believe that the current trade environment continues to pose threats to the multiple facets of the economy,” Hsu said.
High price concerns remain top of mind for consumers
As sales slow, dealers see inventory building up, according to KelleyBlueBook.
Cox Automotive Chief Economist Jonathan Smoke noted this week, “My biggest worry is the decline in sentiment, which could be a harbinger of the labor market worsening and demand declining in the weeks ahead.”
U-M found a substantial 43% of consumers spontaneously mentioned that high prices are eroding their living standards, up from 39% in July and the highest reading in five months, Hsu said. High price worries have also extended to big-ticket purchases as well. Buying conditions for durable goods fell to the lowest reading in a year, and car-buying conditions deteriorated as well, primarily on the basis of high prices, Hsu said.
According to the closely-watched U-M survey of consumer sentiment, a growing share of consumers specifically mentioned tariffs or taxes as a negative factor for car buying. Overall, spontaneous mentions of tariffs throughout the interviews rose from 57% of consumers last month to almost 62% this month, the highest reading since May 2025, concurrent with a reevaluation of trade policy developments earlier this month, Hsu said.
More Economic News
- Federal Reserve Rate Cut May Not Be Enough for Increasingly Price Sensitive Auto Buyers
- Trump Tariffs Expected to Raise Car Prices by Thousands
- Automakers Raising Prices as Tariffs Remain in Place
Consumers influenced by rises in prices
Sentiment is particularly important now because prices for both new and used vehicles, which increasingly require financing, are expected to go up in the coming months as a result of President Donald Trump’s tariff deals with Japan, South Korea and the European Union. They place the equivalent of a 15% sales tax on imported vehicles.
In Japan’s case, last week’s trade deal sets tariffs six times higher than before the Trump administration took office. On a vehicle like a Japanese-made Toyota Land Cruiser that add up to an extra $7,000 in duties.
The transaction prices for new and used vehicles have held steady through the summer not only as manufacturers chose to swallow most tariff costs but as they also increased incentives to entice consumers to make a deal. “Despite the rising import tab, the average new vehicle list price continues to remain flat, down just 0.1% month-over-month from July to $49.500, according to Car Gurus. But there are signs more of tariff costs will be passed on as the new model year approaches.
“That said, 2026 vehicles are slowly arriving on lots, now accounting for nearly one quarter of new listings. As the inventory mix of fresh 2026 options grows, the new car average could begin to rise closer to end-of-year.” Car Gurus said in its latest analysis of market trends.
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