How automotive suppliers are navigating affordability challenges

Vehicle affordability has become a critical pressure point in the automotive industry. After years of rising prices and recent spikes in interest rates, many consumers are now priced out of the new vehicle market. In fact, the average new car transaction price have has crossed the $500,000 mark for the first time ever, with monthly payments of $749 — a staggering 38% higher than in 2018.

Unsurprisingly, 72% of U.S. consumers believe that now is a bad time to buy a vehicle. These conditions are creating ripple effects throughout the automotive value chain. For manufacturers that supply automakers (from large Tier 1 suppliers to specialized component makers), high vehicle costs and interest rates are dampening demand, forcing a shift in what and how OEMs produce vehicles. Meanwhile, the industry’s push toward electric vehicles (EVs) faces headwinds from these affordability concerns, injecting uncertainty into long-term planning.

Keep in mind that those who can afford these vehicles and other highly contented and priced durable goods comprise the top 20% of earners in the U.S., a relatively small segment of the consumer base. How can suppliers navigate the key challenges stemming from the vehicle affordability crunch? How is it possible to remain profitable in the face of these headwinds?

It’s essential to have some context to better understand today’s challenges in vehicle affordability. Here are the major issues and their impact on automotive suppliers:

High interest rates and softer demand

After peaking in late 2023, interest rates are still close to their highest levels 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.

Industry analysts predict that vehicle affordability will remain a problem into 2026, even if the Federal Reserve further eases rates. Sales growth is expected to be less than 1% in 2026, indicating a stagnant market.

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.

Shifting consumer preferences and EV transition uncertainty

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 like 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.

Impact on suppliers:

This uncertain transition pace means suppliers must support legacy internal combustion engine (ICE) 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.

Cost pressures and margin squeeze

Vehicle affordability issues are also linked to 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.

Even as supply chain bottlenecks ease, suppliers now face higher labor costs (exacerbated by recent union wage hikes) and persistent inflation in inputs. Tariffs, supply chain disruptions, and the escalating cost of raw materials are squeezing profitability” across the automotive manufacturing sector.

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.

Unsustainable trend

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.

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.

How Wipfli can help

Navigating today’s enormous economic and business challenges can feel daunting for automotive suppliers. Wipfli’s team has the expertise to 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.

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