Geopolitical Tensions Impacting U.S. Auto Market Sales and Insurance Costs

Industry experts are raising concerns about ongoing geopolitical tensions, such as the conflict in Iran, potentially impacting the U.S. auto market by influencing inflation and disrupting supply chains. Despite these potential challenges, projections for U.S. auto sales in 2026 remain largely stable.

At the New York Auto Forum, Patrick Manzi, chief economist for the National Automobile Dealers Association, discussed how the Iran conflict might impact the economy and market conditions. He noted that geopolitical unrest could disrupt global supply chains and create more restrictive credit conditions, reducing consumer confidence, which can be detrimental to auto demand.

Higher international costs for commodities, such as fertilizer, pose an indirect concern that could contribute to rising food prices and heightened inflation. Manzi indicated that if the conflict persists, these inflationary pressures are likely to expand into various sectors, impacting regulatory compliance requirements and risk management strategies within the industry.

Despite these challenges, the auto industry's future sales projections remain unchanged. J.D. Power maintains its forecast for U.S. light-vehicle sales at 16.3 million units for 2026, aligning with the previous year's estimate. Similarly, Cox Automotive is holding its projection at 15.8 million units, reflecting stable demand expectations.

The situation in Iran introduces uncertainty into a complex market environment. Factors like high vehicle prices, increased interest rates, and higher costs for insurance, repairs, and maintenance continue to exert pressure on consumers. Additionally, concerns about consumer confidence and credit availability, particularly for subprime borrowers, remain prevalent.

However, positive trends could support the market. An anticipated increase in lease maturities, with about 2.4 million leases due to mature in 2026 compared to 1.9 million in 2025, is expected to enhance the availability of certified pre-owned vehicles, which are profitable for dealerships. Returning lease customers are likely to lease again, potentially increasing lease penetration.

Dealer profitability remains strong compared to historical norms, despite a decline from recent peaks. J.D. Power reports that the average profit per new vehicle, including finance and insurance, was approximately $6,100 in the first quarter, down from $6,800 the previous year and $7,300 in the first quarter of 2024. This reflects robust risk management and underwriting strategies within dealerships.