Lower Rates Trim Monthly Payments, but Used‑Car Prices Stay High

Affordability Beyond the Price Tag

When families gather around the kitchen table to discuss monthly payments, the conversation rarely centers on the sticker price alone. Instead, it focuses on what the car will cost each month and how that fits into a household budget. As Tyson Jamny of JD Power notes,

"I think there's a lot of reasons to be optimistic for 2026" – Tyson Jamny

He emphasizes that affordability is not solved simply by offering the cheapest subcompact. Consumers shop by segment: a family needing a three‑row crossover will not consider a hatchback, no matter how low its price.

Financing Options and the Role of Interest Rates

Interest rates are a key lever in keeping monthly payments manageable. Jamny points out that rates have been falling, dropping roughly 40 basis points year over year. Even with rates hovering around 6.5% for standard loans, manufacturers often offer supported rates as low as 1.9% or even zero percent. These incentives can shave hundreds of dollars off a monthly payment, making a new vehicle more accessible for many buyers.

Leasing remains an attractive alternative, with lease payments typically about $120 lower than comparable loan payments. However, not every consumer can lease, and the decision to lease or buy also depends on how long a buyer plans to keep the vehicle. Extending loan terms can reduce monthly payments, but it also ties a consumer to a vehicle for longer, potentially affecting resale value and overall cost of ownership.

The Used‑Car Market and Leasing Dynamics

The pandemic disrupted the used‑car market, reducing trade‑in volumes and leaving many consumers with fewer options to upgrade. Jamny explains that the high trade‑in values that persisted through COVID have helped keep used‑car prices elevated. Even as consumers extend loan terms to 84 months or more, the data shows that they are not delaying their return to the market; used‑car sales remain robust.

Leasing activity also plays a role. With fewer leases being returned in 2022‑2023, many consumers bought out their leases and kept the vehicles, further tightening the supply of used cars. This scarcity has helped maintain high trade‑in values, which in turn supports dealer profitability.

Dealer Strategies and Industry Outlook

Dealers face a complex landscape. While new‑vehicle sales are expected to grow modestly—about 2% in transaction prices—dealers must navigate high inventory levels, incentive spend, and warranty costs. Jamny notes that automakers are absorbing tariff costs rather than passing them on to consumers, which keeps prices stable but pressures dealer margins.

Despite these challenges, the industry remains optimistic. Jamny highlights several tailwinds for 2026: falling interest rates, increased lease returns, and a mid‑cycle market position that allows for strategic incentive deployment. He predicts a strong Sales‑Adjusted Revenue (SAR) of $163 million, flat compared to 2025, and anticipates that transaction prices will rise slightly, setting an all‑time record for consumer spending on new cars.

Fixed operations—service and parts—continue to be a major profit center. Brands that excel in service retention and first‑time service are seeing strong performance. As the average age of vehicles climbs to just over 13 years, the demand for maintenance and repair services is likely to grow, providing a steady revenue stream for dealers.

In summary, the auto market in 2026 is shaped by a blend of consumer affordability concerns, evolving financing options, and a resilient used‑car market. Dealers who understand segment‑specific needs, leverage financing incentives, and capitalize on service operations will be best positioned to thrive in this dynamic environment.