Consumers say it’s a bad time to buy a car. How is this affecting automotive suppliers?
- Rising interest rates and higher new car prices are dampening consumer demand, squeezing automotive suppliers as OEMs flatten their orders.
- EV transition uncertainty is also affecting planning as U.S. consumers hesitate over high upfront costs, forcing suppliers to balance investments in both legacy components and new EV technologies without clear ROI timelines.
- Rising raw material prices, labor costs and logistics expenses are increasing faster than revenues, while automakers resist price hikes and demand lower-cost components for economy models.
- Automotive suppliers should focus on strengthening financial resiliency, boosting operational efficiencies and leveraging automation to reduce impact on margins.
Affordability challenges for automotive suppliers are putting significant pressure on the industry. With consumer sales dropping as prices continue to climb, OEMs are in turn flattening or reducing orders with auto parts suppliers — creating a range of downstream effects.
Why is this happening, and what should automotive businesses do to adapt? Keep reading to learn more.
Consumers are buying fewer cars due to spiking prices
After years of rising prices and recent spikes in interest rates, many consumers are now bowing out of the new vehicle market. This is affecting not just OEMs, but automotive suppliers as well.
- The average new car transaction price has crossed the $50,000 mark for the first time ever, with monthly payments of $749 — a staggering 38% higher than in 2018.
- 72% of U.S. consumers believe that now is a bad time to buy a vehicle.
- The 2025 EV market share forecast is 8.8% of new car sales, revised down from 9% in 2024.
- Those who can afford these vehicles typically comprise the top 20% of earners in the U.S., a relatively small segment of the consumer base.
Let’s explore some of what’s driving these consumer trends, along with other affordability pressures on suppliers, in greater detail.
High interest rates and shifting demand are driving consumer affordability challenges for automotive suppliers
Shifting consumer demand is fueling ripple effects throughout the automotive supply chain. For manufacturers that supply automakers (from large Tier 1 suppliers to specialized Tier 2 and Tier 3 component makers), high vehicle costs and interest rates are dampening demand, forcing a shift in what and how OEMs produce vehicles.
Here’s what to know about key affordability drivers:
High interest rates
After peaking in late 2023, interest rates are still close to their highest level since 2008. Paired with increased vehicle prices, financing a new vehicle has become significantly more expensive. This “payment shock” for consumers is leading many to delay purchases or opt for cheaper models and used cars — while also limiting suppliers’ access to loans.
Industry analysts predict that vehicle affordability will remain a problem in 2026, even if the Federal Reserve further eases rates. Sales growth is expected to be less than 1% in 2026, indicating a stagnant market.
Softer demand from both consumers and OEMs
For suppliers, weaker new car demand means the volume of orders from automakers could plateau or decline. Additionally, a shift in sales toward lower-priced trims and models is underway: “Consumers still need vehicles … but the high cost of luxury or heavily optioned vehicles limits them. So, they choose more affordable alternatives,” as one industry analysis noted.
If automakers build more base models and fewer high-content luxury vehicles, suppliers of premium components may see reduced business. Moreover, automakers feeling the revenue pinch may put pricing pressure on suppliers to cut costs so that vehicle sticker prices can come down. In short, high interest rates and cautious consumers create a challenging demand environment for suppliers, who must prepare for potential order volatility and tighter margins.
Consumer ambivalence around the EV transition is also squeezing suppliers
In addition to seeking cheaper options, consumers are also showing ambivalence toward EVs when faced with high costs. EVs generally carry higher upfront prices, and although the total cost of ownership is improving, affordability remains a top concern.
Recent data shows that battery electric vehicles (BEVs) accounted for 10.5% of U.S. auto sales in Q3 2025, but analysts have revised their forecasts for EV adoption due to headwinds such as cost and charging infrastructure. AFS revised its 2025 EV market share forecast from 10.4% to 8.8%
Automakers have taken note: many are scaling back or delaying EV rollout plans and expanding their lineup of hybrids and fuel-efficient combustion models to hedge bets. “The market was never going to make a smooth transition to EVs. … Moving on to less tech-savvy buyers will slow EV market share growth over the next few years,” explains Sam Fiorani of AutoForecast Solutions (AFS).
Given that production growth is expected to be nearly flat in 2026, with only a 0.01% increase over 2025, a conservative approach to financial management is warranted.
Suppliers must balance an electric future with a dip in present-day demand
The EV transition uncertainty means suppliers must support legacy internal combustion engine programs longer than anticipated, while still investing in new EV technologies. Suppliers that have invested heavily in EV-only components may not experience the rapid volume growth they had expected, potentially leaving costly new production capacity underutilized.
On the other hand, those reliant on traditional parts face a strategic risk if they don’t adapt to electrification trends at all. Essentially, suppliers are caught in a balancing act — needing to innovate for an electrified future but without a clear timeline for ROI due to fluctuating consumer demand for EVs. This can strain finances and R&D budgets, and it raises the stakes for making wise investment decisions in product development.
Supply chain pressures continue to squeeze margins
Beyond falling consumer demand: Automotive suppliers are also confronting rising costs in the supply chain. Over the past few years, raw material prices, semiconductor costs and logistics expenses have all increased, contributing to higher vehicle costs.
- With automakers reluctant to raise prices further (fearing they will lose customers in an affordability-constrained market), suppliers often cannot simply pass on these higher costs, resulting in pressure on their profit margins. Additionally, if automakers pivot to more economical vehicle models, they will demand lower-cost components, challenging suppliers to meet target prices.
- Many suppliers are seeing their operating costs rise faster than revenues, a trend that is unsustainable. Profit margins, which are already average at best in the industry, are at risk of shrinking.
- Suppliers that are less efficient or carry high overhead may find themselves in financial difficulty as the market tightens. In short, the need to produce more cost-effectively has never been greater — both to absorb external cost increases and to enable automakers to hit affordable price points for end consumers.
How can automotive businesses adapt to affordability challenges?
Long-term success for suppliers will depend on their ability to adapt. The industry is facing an increasingly uncertain and challenging business environment where demand fluctuations, EV-driven production shifts and economic volatility mean suppliers must adapt faster than ever.
Here are four key steps to help automotive suppliers adapt to this new business reality:
- Leverage advisory support
Work with a third-party advisor firm to assess your current business and consider how you can adjust your systems and processes to become more efficient and profitable. A good advisor will specialize in the automotive business and bring a fresh perspective that can supplement your own internal insights and help your team navigate this challenging era. - Strengthen financial resilience
To help ensure greater financial resilience, you should reevaluate your financial strategy. This typically includes scenario planning, adjusting your budgets to account for lower order volumes from OEMs and optimizing your cost structure — all areas your advisor can help you with. - Boost operational efficiency
Take a deeper look at how your organization operates to find efficiencies. How can you streamline production, reduce waste or bolster productivity? Even small wins matter here, so don’t be afraid to question long-established practices. - Embrace digital tools
Digital tools can help you find efficiencies by giving you a clearer picture of how your business operates. AI can also offer cost savings by allowing you to automate or optimize scheduling, quality control and inventory management, helping your organization to adapt more quickly to shifting conditions.
How Wipfli can help
Navigating today’s enormous economic and business challenges can feel daunting for automotive suppliers. Wipfli can help your company thrive through any conditions. We’re ready to work with you as you adapt to the complex changes affecting your industry. Learn more about our services for automotive manufacturers.
